Tanker Insights – Mid-Sized Tankers Poised to Find Support from Increased US Crude Exports
Changes in US infrastructure positive for seaborne exports
Last month, we discussed changes to US crude production and the resulting uptick in seaborne US crude exports as it relates to global oil pricing. While global benchmark pricing is having a direct impact on the desirability of US light sweet crude moving to global markets, there are some finer details making it easier and more economical for US producers to get their barrels to international markets.
Despite reduced production in the Bakken and Eagle Ford shale fields as a result of ongoing low oil prices, a decrease in the cost of production in the Permian Basin has elevated production by ~0.4 mb/d from Jan’16 to Apr’17. Coupled with the rapid expansion of pipeline capacity into the US Gulf, including the 470 kb/d Dakota Access Pipeline expected online in Q2-2017, as well as an additional 340 kb/d of pipeline expansions by the end of 2017, the expectation is that US crude exports out of the US Gulf will continue to increase. Finally, the build out of a new export-capable Aframax terminal in the US Gulf will make it easier to ship barrels out, which will be positive for mid-sized tankers.
Prior to lifting the crude oil export ban in 2015, US crude exports went almost entirely to Canada. However, as the chart above demonstrates, movements to global markets, particularly to Asia and Europe, increased significantly in 2H-2016. Movements to Asia have increased 83 kb/d from Q1-15, while volumes to Europe have increased 55 kb/d during the same period. These increases have largely offset exports to Canada, which have decreased by 145 kb/d.
While the increase in US seaborne exports is positive for tankers, the volume of exports isn’t likely to materially move the freight market. For now… Given the robust delivery schedule for large tankers in 1H-2017, which is likely to put downside pressure on freight rates, the positive demand fundamentals resulting from increased US exports could offset some of the burden of fleet growth. As the orderbook rolls off, and deliveries slow, we expect that the next burst of US exports through infrastructure build outs could contribute to a potential mid-size tanker market recovery from 2018 onwards.