Continuing on from last week’s piece, we follow the developments in the tanker market as OPEC through stark warning in its recent forecasts of continued oil supply glut in 2017 as new fields are brought online and the U.S. shale oil producers prove to be more adaptable then originally presumed to the new cheaper oil environment. At the same time we are seeing an unprecedented drop in U.S. crude oil inventories as a consequence of the disruptions brought about by hurricane Hermine, something that sent prices on the speculative rise again towards the end of last week. This combination at first sight could be seen as a fairly good start in the autumn season, with inquiries for U.S. imports growing in number over the next couple of days and helping drive a healthy upward trend in freight rates once more. The ideal circumstances to battle the slight excess in tonnage supply is ample increases in both crude oil production and consumption, so as to drive trend onto a good growth path.
Things aren’t so rosy however for the longer term and beyond the final quarter of 2016. OPEC, along with its assessment of production levels for next year, issued forecasts for lower global demand figures, averaging at 32.48 million barrels per day in 2017 (its previous month’s forecast was at 33.01 million barrels per day). What’s more is that based on these forecasts there is all the more fear that during OPEC members meeting in Algiers this month an agreement will finally be reached for each of the members to each place an output cap. This will likely lead to a more restrictive production growth scenario materialising for 2017, while it may also lead to slight price hikes above the average level we have seen the past two years. The plus side is that this comes at a time when we have seen the average number of large new projects per year decline to their lowest figure to date, with only six projects having been signed compared to an average of 40 that was seen between 2007 and 2013.
A further factor that needs to be taken under consideration is the slower stockpiling undertaken by China during the first half of 2016 as construction delays hit most of the upcoming sites that were expected to come online and existing sites were already filled. Independent refineries have been picking up some of the slack and they have been gaining from these delays and having seen their buying power increase considerably during these past couple of months. With several new sites now expected to come online later in 2016 and early 2017, Chinese demand growth is expected to get a significant boost. With independent refineries expected to continue to move on their own following the pace of internal consumption of oil products in China and with the Chinese government likely to make a move to fill up on the cheap supplies, especially in the case whereby crude oil by OPEC members do receive some cap and fears of further hikes in crude oil prices grip the overall market. With 150 million barrels storage capacity expected to come online within the next 6 months or so, this is a considerable boost on the demand side of the market and will surely help prop up freight rates for the large crude oil carriers if all else remains as is. For the moment we will just have to make do with the hopefully better performance expected to be seen in the final quarter of 2016, as for what’s to come after, what needs to definitely be taken is a pinch of caution.