Diskussion om nordisk shipping

I have collected my latest thoughts on the product tanker market. I would love to hear thoughts from others about why you think product tanker rates have fallen and what you think of the market for the rest of 2023.

Markets have been speculating lately about how the upcoming ban on Russian clean products will affect product tanker markets and, in turn, the share prices of product tanker owners and operators. In the final months of 2022, product tanker rates surged, resulting in related stocks also performing well. Many market analysts expected rates would remain high into 2023 as the EU’s ban on Russian clean oil products is to come into effect on 5th Feb 2023. However, the Baltic Clean Tanker index shows rates have significantly retreated so far in 2023 (see below).

A possible explanation for the fall in product tanker rates is reduced European gasoline demand from a warmer-than-expected winter, in combination with Europe maximising Russian import volumes ahead of the February 5th deadline, importing 1m b/d so far in January, as reported by shipping news (https://www.hellenicshippingnews.com/product-tankers-and-diesel-supply-for-the-eu-what-to-expect/)

The ban, therefore, raises two questions, what will Russia do with its supply no longer flowing to Europe, and, where will Europe cover the lost supply from?

Investigating the first question, Bloomberg’s Javier Blas recently reported that Russia’s export capacity through 2022 was incredibly robust through 2022, with Blas highlighting that despite repeated EU sanctions, Russia exited 2022 pumping 11.2m b/d in total oil liquids, down just 1.6% (or 190k b/d) from pre-invasion levels. Russia has largely maintained its export levels by redirecting exports to destinations such as India. An interesting point of note is that some new destinations for Russian oil and oil products have seen their exports increase as some of the Russian product is sold back to Europe under the label of a “friendly” nation. Javier Blas suggests India might be doing this in the below tweet and also references the fact that Malaysian exports to China reached 3x Malaysia’s output capacity as evidence for relabelling. [1] [2]

With an EU ban on Russian clean products, Russia will need to find a new destination for its exports to Europe and will lose access to a fleet of European vessels. The evidence presented by Blas suggests that, in the long-run, Russia is likely to resolve these issues and maintain exports at near pre-war levels. However, in the short-run Russian exports of oil products may fall, negatively impacting the product tanker market and the supply of vessels transporting non-Russian oil products could increase, also bringing a negative impact. However, over a longer-term time horizon, the market is likely to re-establish equilibrium with Russian exports moved by non-European vessels.
The most significant effect over the longer term is a redirection of flows, leading to an increase in tonne miles as Russia ships its oil products to “friendly” nations such as India further afield. Europe will also need to source its oil products from further afield with the Russian tap firmly closed, also adding to the tonne mile effect. So where will Europe turn? The below report by SPGlobal shows that since Russia’s invasion of Ukraine, Europe has relied heavily on the US to supply increased volumes of oil products.

Europe still buying over quarter of diesel imports from Russia ahead of new curbs | S&P Global Commodity Insights.

However, Blas also reported last week that during the second week of January, the US didn’t release any oil from its SPR reserve, suggesting the US should not be looked to make up for the pending deficit. This suggests that Europe will have to go further afield in search of its oil products, increasing the tonne mile effect in the process. The big unknown will be whether Europe is willing to import relabelled Russian clean products, potentially via turkey, as suggested by Bloomberg, or North Africa as suggested by Shippingnews, or whether new flows will come from the gulf or elsewhere in Asia.

In addition to the tonne mile effect, the China reopening should also be positive, and MarineLink recently published an article suggesting that jet fuel trade could increase significantly as a result and end 2023 just 5-10% short of pre-pandemic levels, reflecting a year-on-year growth of 25-30% and as much as a 2% boost to the overall clean petroleum product’ volume. The China reopening will likely provide continued demand-side support, I have previously discussed this view in relation to the household savings rates.

Overall I see there being short-term uncertainties but expect that Russia’s supply will find a new home with time. I think the China reopening story is a large demand-side support, which should outweigh recession fears, and when you consider the tonne mile dynamics and low vessel supply growth, the market conditions should remain favourable. I also saw this view expressed recently by Poten & Partners (link below). However, there are also uncertainties, one of which is a question of how much of these dynamics are already priced into the market, and I think the big unknown is how strict Europe will be regarding relabelled Russian products.

I would love to hear alternative views and for people to share opinions, and even more so if they are contradictory.

For alle, der er interesseret i, hvordan Rusland flytter sin olie fra sine havne i Østersøen, er denne artikel fantastisk.

Det forklarer, hvordan Rusland bruger sine mindre Aframax-skibe til at laste større VLCC’er nær en spansk ø nær Marokko.

Hi everyone,

I thought I would update the thread following the Q4 earnings from Scorpio Tankers last week and ahead of the Q4 earnings from Hafnia next week.

To start, we can see the Baltic Clean Tanker Index has seen a significant move higher since my last post. (see below):

The rates have increased as markets understand the outcomes of the European embargo on Russian clean products. Scorpio Tankers provided valuable insight in its earnings call and Q4 presentations.

The most interesting takeaway for me was Scorpio’s demand outlook. Scorpio forecasts an increase in refined product tone mile demand of c. 11% for 2023E, driven by a 4.2% increase in absolute volume and a 7% increase in tonne miles.

The company cited continued demand strength with low global inventories and continued drawdowns of strategic petroleum reserves (both in the US and China), supporting the demand outlook. Scorpio Tankers also began to show us how the re-routing of Russian clean petroleum products (CPP) is happening, with Russia increasing its exports to Turkey by roughly 300,000 b/d following the embargo. S&P Global Commodity Insights highlighted that other destinations also include Algeria, Tunisia, Ghana and Saudi Arabia.

For perspective, that means Russian CPPs are moving from the baltic sea all the way around Europe to Turkey, North Africa, and The Gulf, rather than simply moving products from the baltic sea to Northern Europe. See the graphic from Scorpio’s Q4 2022 earnings presentation below.

The increase in tonne-miles will also be driven by Europe replacing its Russian supply from further afield. Prior to the embargo, Europe accumulated Russian CPPs increasing inventories which has held imports below pre-embargo levels, however, Scorpio’s management on its earnings call suggested Europe will need to return to its pre-embargo import levels of 1m b/d, sourcing its CPPs from the likes of the US, The Gulf, and India (more tonne miles).

There is also the factor of the China reopening. Any close followers of the oil market will have noticed prices have not moved much on the reopening story, against most analysts expectations (including mine). However, demand for oil products and particularly jet fuel, have been increasing. China has drawn on its strategic petroleum reserve and cushioned the market, as shown by the tweet below from Steno Research.

However, Scorpio also mentioned on its earnings call it expects the China reopening to positively impact the market through 2023, and as the months pass, markets should receive more data about how China is affecting the market.

The US SPR is also a part of this story as the Biden administration announced it will continue drawing down its SPR, with plans to release an additional 26m barrels before the end of August 2023, equating to approx 290,000 b/d. The signal is that US supply will be sustained. The past weeks have also seen crude and oil product inventories increase (from very low levels), which suggests the US can continue to supply Europe at least for the short-medium term.

Usually, inventory building can be a weakening demand signal for product tankers, however, given the low levels of these inventories, there is still a way to go before inventories come off of their 5-year average lower bound for this time of the year. You can find more information at the following link if interested: Weekly Petroleum Status Report Archives

The final focus for Scorpio’s market outlook was to reemphasise the constrained vessel supply outlook, which we have discussed many times previously in this thread and won’t focus on today.

To summarise, Scorpio Tankers gave us direction for how markets are reacting to the embargo and showcased how tonne miles can increase through redirected Russian CPP flows to Turkey and North Africa and European flows from the US, and The Gulf. The next key earnings call to look forward to will be from Hafnia, scheduled for 28th Feb.

Hafnia will also host an event with HC Andersen Capital where you can ask questions directly to its CEO Mikael Skov. The date is yet to be confirmed, but I will keep you updated.

Seneste opdatering fra Baltic Clean Tanker indekset. Priserne er faldet lidt. Finder markedet smuthuller, eller er det bare en pause?

Efter en markant spurt er Torm-aktien efterhånden fuldt værdisat, mener Danske Bank, der sænker sin anbefaling til “hold” fra “køb”. Kursmålet er derimod hævet med en femmer til 250 kr.

Selv om vi forbliver positive over for markedet for produkttank i 2023 og 2024, har vi svært ved at se yderligere kurspotentiale her og nu, skriver Danske Bank i notatet.

Torm-aktien er over det seneste år cirka firedoblet i værdi.

An interesting New York Times article highlighting how some tankers are evading sanctions.

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