In Hellenic Shipping News 22/05/2015
A growing pattern has emerged over the past few years in the tanker market crude flows, as the USA has been cutting back on its imports of crude oil, as a result of the unforeseen shale oil boom. Latin American oil producers, who traditionally saw the US being the primary market, have now been forced to look to new markets, with Asian refiners proving to be a nice fit.
In its latest weekly report, shipbroker Gibson noted that in February 2015 (latest EIA figures) US domestic crude production has reached 9,238 kb/d, levels not seen since the 1970s. This increase has contributed significantly to large shifts in global supply and demand along with oil trade flows. Latin America, renowned for heavy sour crudes, is now becoming an even more serious market player in global crude flows and the reason is two-fold; 1) Latin American crude which has traditionally been sold into the North America has to find new export markets in the wake of supressed US import demand; 2) Demand centres continue to originate and grow from Asian refiners who are finding efficiencies running heavier sourer crudes, which trade at steep discounts to global benchmarks such as Brent and Dubai”, the London-based shipbroker noted.
Gibson added that “running Venezuelan crude, such as Vasconia, through a European refinery would be akin to an engine designed for gasoline, running diesel. However, feed Vasconia to a complex refinery, such as those coming online on both the Indian sub-continent and in East Asia, and it will satisfy such refineries’ diets. To summarise the change in Latin American flows; you have one push factor, the US shale revolution, and one pull factor, the increase in demand for heavy sour crude from Asian refiners to feed their complex refineries”.
Meanwhile, “as Chinese capital controls have eased since 2007, China has invested over $50 billion into Venezuela in exchange for imports of crude and product shipments. Venezuela’s National Oil Company (PDVSA), record that 550,000b/d is exported to China and 360-400,000b/d to India and they expect volumes to grow further. As Venezuela relies on oil for 95% of its export earnings, it is important to get a competitive slice of this export market, especially considering the recent drop in crude oil prices. Considering Venezuela managed to improve its current account by $14.5 billion in 2014 alone indicates the importance of global petrochemical shipments to Venezuela’s economic health”, Gibson noted.
On top of that “Asian refiners have recently been assessing the new Iraqi ‘Basrah Heavy’, a heavier grade from the AG. Although this grade is of similar density to a typical Venezuelan crude such as Vasconia (both around 24 API), the Basrah Heavy is sourer – with a higher sulphur content of 4%, which might make the Iraqi contestant a difficult purchase in large volumes. It has been reported that Vasconia should show a greater discount to Basrah Heavy and therefore this could mean its attractiveness to the East is sustained, especially if the freight economics work. It was only earlier this year that Mexico delivered its first crude export to South Korea in 20 years, another welcome alternative to Asia’s dependence on the Middle East”, Gibson said.
Meanwhile, the shipbroker added that “when bitumen is in high demand, cargoes of Latin American crude are often sold into NWE in small parcels. These parcels have to be carefully planned as the heavy crude requires blending with lighter crudes in order to be run through the European refineries. One strategy could be to ship larger volumes of lighter crude from West Africa and the Mediterranean to the Caribbean for blending into medium-type grades. PDVSA states that Venezuela would like to supply refineries with medium grade crudes due to the oversupply of light sweet crude from increased US domestic production. Again, the shipment of this lighter crude to the Caribbean will work only if tanker economics fit on what is currently an unestablished tanker route. Last October Sonatrach supplied 2 million barrels of light sweet Algerian crude to PDVSA which was blended prior to US import. Repetition of this trade could add an interesting dynamic into global crude trade flows”.
As a result, “for the tanker market the benefits of this increased demand are obvious. Although Latin American countries still rank as some of the top suppliers of crude to the US, with the increase in US domestic production, exports have been in decline and therefore Latin American producers need to supply significant volume to other markets. Additional pressure has been added due to the slump in the price of oil so countries like Venezuela will need to increase notional export volume just to sustain income. Crude imports into the US from Venezuela alone have dipped by around 750,000b/d since 2004, translating into an additional 11 VLCC liftings per month. This export trade surplus volume needs to find a buyer and Asian refiners seem to have the solution”, Gibson concluded.
