Higher Refinery Outages Plague Product Tanker Market
In what has been a turbulent year for the product tanker market, it seems that 2017 has seen a notable increase in unplanned refinery outages, which has naturally had an impact on the product tanker market. In its latest weekly report, shipbroker Gibson said that “whilst consistent data is hard to come by, it certainly seems like unplanned outages are higher than in previous years. We presume this is due to a number of factors. Firstly, margins have been generally strong since the oil price crash in 2014, even in regions such as Europe with it’s ageing infrastructure. These strong margins prompted many refiners to delay or minimise maintenance, whilst also increasing run rates. We suspect that a reduced maintenance programme is one of the reasons why we are seeing an increase in unplanned outages, particularly in Europe and the US”.
Gibson said that “whether or not this has been positive for product tankers depends on the position of the vessel and the timing. If we take the outage at Shell’s 404,000 b/d Pernis plant as an example, this was of little benefit to clean tankers already on the Continent. However, it was of almost immediate benefit to larger product tankers in the Middle East Gulf which were already firming in line with seasonal trends. Pernis was not the catalyst behind a firmer Middle East products market, but it did add fuel to the fire when it was unexpectedly shut down. The outages in Europe also helped product tankers in the US Gulf. Whilst there was no mad rush following outages at Pernis, the US Gulf market had already been boosted from an outage at Pemex’s 330,000 b/d Salina Cruz refinery on the West Coast, increasing import demand. Furthermore, low run rates have boosted Venezuela’s import demand, whilst issues paying for the cargoes has led to discharging delays, all providing support to the US Gulf products tanker market. US Gulf refineries have not been immune from their own problems. Although the short-term impact on the market appears limited, if such outages persist, diesel flows out of the US Gulf could come under pressure, although right now demand, rather than supply seems to be the issue”.
The London-based shipbroker added that “just as the diesel market in North West Europe was tightening, problems in the Mediterranean emerged. The Mediterranean diesel market had already tightened before Hellenic’s 100,000 b/d Elefsina refinery went offline unexpectedly, soon followed by further issues at Paz’s 100,000 b/d Ashdod plant. Now, with two key diesel markets suffering from outages, further support was offered to tankers in the US Gulf and Middle East. Finally, this week Exxon had an issue at their 193,000 b/d Rotterdam plant. For product tankers positioned on the Continent, the positives have been limited. With perhaps the only real opportunity being flows from North West Europe into the tighter Mediterranean market. However, this opportunity has now faded, following higher flows from the US Gulf, Middle and Far and East, and healthy stockpiles. Traders had appeared more comfortable with forward diesel supply, although hurricane season could complicate the picture in the short term”.
According to Gibson, “fundamentally, September will mark the start of autumn maintenance programmes in Europe, which could see a tighter market for a few more months, supporting further flows into the region. Whilst this may be positive for tankers bringing product into Europe, it does point to higher regional tonnage supply, and reduced export flows out of the region. However, in the short-term hurricane season could counter the more challenging underlying fundamentals and see freight rates spike, as precautionary refinery shut downs in the US Gulf tighten the American products market, creating import demand. Equally this may impact distillate exports to Europe. Larger product carriers may also see improved opportunities to the East, as traders plan light distillate supplies ahead winter when LPG prices are likely to firm somewhat, increasing the competitiveness of naphtha in the petrochemical supply chain. Still, higher inbound tonnage flow into the European region is likely to prevent any major hike in LR1 and LR2 freight rates to the East, even if a general theme of improvement is expected”, the shipbroker concluded.
Meanwhile, in the crude tanker market, in the Middle East, Gibson noted that “VLCCs have seen more activity this week, but are still suffering from the ongoing problem of supply outstripping demand and rates have further slipped. It seems likely that rates have now bottomed at ws 36 to the East and ws 22 West. Suezmaxes have also seen an uptick in activity with rates to the East operating in the low ws 70’s and West at ws 70. The trend continues with many Owners deciding to ballast their tonnage to West Africa. Off the back of a tightening Aframax market rates, by mid-week, pushed up to 80,000mt by ws 92.5 to Singapore. Rates have remained steady for the balance of the week and are likely to be maintained into early next week”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide