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Tanker market could face sharp rebalancing in next couple of years: Fuel for Thought

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The global tanker market is set for some critical capacity management in 2021-22. Weaker freight rates have sapped enthusiasm for new orders, and creaking oversupply of older ships could accelerate scrapping. With uncertainty over pandemic-related oil demand and over fueling ships ahead of key climate goals, a step backward may be the way forward for tankers.

The boom in tanker deliveries in 2019 is set to be followed by a lull. New orders have fallen to decade lows, with the third quarter of 2020 seeing a substantial decline. A total of 84 vessel orders have been placed so far this year compared with 163 orders last year, according to S&P Global Platts Analytics data.

Overall, only 364 vessels are currently on order, which represents just 7.5% of overall dead weight tonnage capacity and compares to a steady 500 vessels, or near 12% DWT capacity, before the slowdown in new contracts in 2019, Platts Analytics figures show.

Low rates

Ship buyers have put been reluctant to snap up vessels given the low tanker rates, with freight rates collapsing since May. S&P Global Platts freight rates data showed an average of $12.34/mt across September 2020 on the VLCC West Africa-to-East route, down from $19.29/mt year on year.

Freight rates VLCC

There are concerns about the recovery in the demand for crude, with transportation fuels in particular suffering at the hands of the pandemic, and that could keep freight rates suppressed for some time to come.

OPEC+ production cuts, weak US output and subdued end-user demand in Europe have caused a reduction in cargo activity across all loading regions. Ton-mile demand on the West Africa-to-UK Continent run fell 30% year on year to 17,847 mt per nautical mile across September, according to data from Kpler.

Clean concerns

Buying ships also comes with added risks this decade, given the lifecycle of ships could be 20 years or more in an environment where there is growing pressure to decarbonize, impacting engine design and fuel choice.

Discussions from the European Parliament to integrate shipping within the existing EU Emission Trading System could mean having to reduce current emissions by 40%. While this will largely be done by shifting from fossil-fuel based bunkers to greener alternatives, uncertainty remains with regards to availability in the coming decade.

Among the 58 VLCCs on order, three will be equipped to run on LNG, 22 with scrubbers allowing heavy sulfur fuel oil, and 33 will use very-low-sulfur fuel oil, according to Platts Analytics data.

Coupled with this, the question of sustainable transition also bears a question with regards to the cargo itself, or whether there will be any recovery in crude oil demand in the midst of efforts to replace fossil-based energy with less polluting alternatives.

While oil demand is likely to bounce back next year it is unlikely to reach 2019 levels until 2022 at the earliest.

Global VLCC fleet by average age

Scrapping conundrum

The lack of new orders, the floating storage bonanza and low scrapping rates have all meant ship-owners have been squeezing maximum value from their tankers, even those in the twilight years of their lifecycle.

“Scrap prices have also fallen to their lowest level in four years at around $300/dwt, down from over $400/dwt before the COVID outbreak and are unlikely to recover soon given the negative economic outlook,” Platts Analytics said in a research note.

And with new vessel deliveries set to come in at around the 200 mark both this year and next, which is well down on the 250+ vessels in 2019, it could mean shippers continue to eke out as much as they can from their current stock.

Shipping freight report outlook 2020 Q4

Find more on shipping market trends in S&P Global Platts’ special report – click to view

However, with freight rates now in the doldrums and returns from floating storage potentially ebbing away as charterers renegotiate period contracts or discharge oil at sea, the incentives to send older ships to the demolition yards could return, especially given there are a lot of older ships that need to retrofit expensive ballast water treatment systems (BWTS).

At the start of 2020, around 100 tankers aged above 15 years old had IOPP certificates expiring, making them candidates for scrapping, according to data from EA Gibson Shipbrokers. Since March 2019, the Ballast Water Management Convention mandated that ships built before September 8, 2017, be in possession of the IOPP survey to postpone the installation of a BWTS.

While scrapping rates are predicted to increase as the majority of IOPP certificates will expire within the 2021-22 window, freight will continue to remain weak amid low oil demand in 2019, which might cause owners to decide scrapping their vessels and help support the market on the long term, Gibsons Director Richard Matthews said.

Shipping breaking yards in Southeast Asia picked up pace over the third quarter, with dollar per light displacement ton (ldt) ticking up from record lows in early May 2020. According to data from Charles R. Weber, tanker demolition rates picked up from $280/ldt in the week starting May 10 to $360/ldt in the week ending Sept. 20.

Euronav CEO Hugo De Stoop told Platts he thinks the tanker market can adapt to the challenges of oversupply and weaker demand both in the near term and further out.

“Every year, you have, roughly speaking, 5% of the ships that are too old so they go to the recycling yard or scrapyard,” he said. “As long as you don’t renew that, your industry can reduce the size of supply by 5% every year, and we don’t believe that the oil demand will be reduced by 5% every year.”

De Stoop also pointed to the strategy of buying second-hand ships to grow its fleet, given the uncertainty in the pandemic and with energy transition. This could be the way forward for many in such a volatile period and help the market rebalance.

While the tanker market won’t want to swallow the medicine needed for rebalancing, it will feel healthier in the long run and help freight rates make a full recovery.

Fuel for Thought is a weekly column published first in S&P Global Platts Oilgram News



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Biden presidency could cut slow path to resumed Iran, Venezuela oil exports By Reuters

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© Reuters. FILE PHOTO: Democratic presidential candidate Joe Biden attends a Voter Mobilization Event in Cincinnati

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By Timothy Gardner, Marianna Parraga and Bozorgmehr Sharafedin

WASHINGTON/MEXICO CITY/LONDON (Reuters) – Democratic U.S. presidential hopeful Joe Biden’s promised return to diplomacy with OPEC-members Iran and Venezuela could cut a path for a return of their oil exports should he win, but not before many months at least of verifications, talks and deal-making.

The timing of a potential resumption of shipments is crucial to world oil markets: U.S. President Donald Trump’s unilateral sanctions on the two countries since taking office in 2017 have blocked up to 3 million barrels per day (bpd), or 3% of world supply. Iran has taken the biggest hit, with exports shrinking by around 2 million bpd to around 500,000 bpd.

The sanctions fit squarely with Trump’s policy of energy dominance to boost oil exports from the United States, which in 2018 became the world’s largest producer of crude.

A broad change in Iran policy would likely come first, but the soonest that full, sustainable oil exports could return from that country is about a year from now, said Richard Nephew, the lead sanctions expert on the U.S. team that helped land a deal with five other world powers on Tehran’s nuclear program in 2015.

Trump withdrew the United States from that deal in 2018 over the objections of European and Asian counterparts. He argued the deal did not address Iran’s ballistic missiles program and militancy across the Middle East.

Biden, who was vice president under President Barack Obama when the 2015 deal was struck, has said he wants to offer Tehran a path back to diplomacy. If Iran commits to not acquiring a nuclear weapon, he would rejoin the deal and strengthen it.

Nephew, now a research scholar at Columbia University’s Center on Global Energy Policy, said the requirement that Iran return to compliance with the 2015 deal would probably create implementation delays regardless of political agreements.

For example, Iran would need to downgrade its supplies of enriched uranium, which have built up during the Trump administration. Down-blending takes time, and verification by U.N. inspectors could take months.

As for negotiating a follow-on deal, that would take longer. A Biden administration would first be busy with the basic work of finalizing leadership teams and prioritizing policies, he said. Moreover, organizing multilateral negotiations on a new Iran deal would take additional time.

“This is going to wait,” Nephew said.

Bob McNally, a national security council energy expert under former President George W. Bush and president of the Rapidan Energy Group, predicted a return of Iran’s oil exports in the second half of next year.

European officials are eager for a renewed relationship with Iran if Biden wins, but have not attempted to engage with his campaign on the issue ahead of the election, fearing blowback from the Trump administration should Trump win, three EU diplomats said.

The Biden campaign did not comment on Iran about this story, but pointed to a Biden piece https://www.cnn.com/2020/09/13/opinions/smarter-way-to-be-tough-on-iran-joe-biden/index.html on CNN.com in September that said he would make an “unshakable commitment” to preventing Iran from acquiring a nuclear bomb.

Iran is not anticipating quick relief from sanctions that have slammed its economy, said the head of an oil trading firm in Tehran. A presidential election scheduled in Iran for June 18 would almost certainly delay talks on the issue.

“It will take a long time,” the source said.

Once the politics are resolved, large shipments could return quickly. Iran has accumulated about 100 million barrels of oil in floating storage and offshore tanks in countries like China, according to Iman Nasseri, managing director for the Middle East with consultancy FGE.

“Iranian oil can reach markets overnight,” he said. “Iran can rely on this export for months, while working to bring its production to previous levels.”

In the meantime, a Biden administration could be more lax in enforcing sanctions and award a new round of waivers, allowing a few countries to buy limited amounts of Iranian oil, said Ed Crooks, vice chairman, Americas for Wood Mackenzie. Trump axed the waiver program in 2019.

MURKIER PATH ON MADURO

Biden shares Trump’s desire to see the replacement of Venezuelan President Nicolas Maduro, a socialist whose 2018 election was widely seen as fraudulent.

Biden would likely retain sanctions against Venezuela’s state oil company PDVSA in the near-term, according to Leopoldo Martinez, a strategist for Biden’s campaign on the Latino vote.

But the strategy would probably shift substantially under Biden, with more input from allies and trading partners on a path forward.

“We are not seeking to dismantle the sanction policy, but to apply sanctions in an intelligent way, helped by a multilateral effort and with specific goals to be achieved, mainly free, fair and credible elections,” Martinez said.

Sanctions could theoretically be lifted once those goals are achieved.

Meanwhile, a Biden administration would also push for humanitarian relief in Venezuela, where much of the population has suffered under sanctions on oil, the lifeblood of its economy, Martinez said.

Rapidan, McNally’s group, said in a note that humanitarian relief could include an easing of U.S. sanctions on Venezuelan imports of fuels like gasoline, but not a break on sanctions on petroleum exports.

Even in the event of a change of leadership that resulted in a lifting of sanctions, a quick return of Venezuela’s exports beyond about 1 million bpd, up from about 500,000 bpd currently, is unlikely for six months to a year, Rapidan said.

A lack of investment has left equipment and fields in Venezuela, which holds the largest oil reserves in the world, in a state of disrepair.

“That one is a much more distant scenario than Iran,” Columbia’s Nephew said about Venezuela. “I’m not sure we have the same ability to call the shots there.”





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Monsanto loses final appeal over French farmer’s weedkiller accident By Reuters

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© Reuters. The logo of Monsanto is seen at the Monsanto factory in Peyrehorade

PARIS (Reuters) – Bayer’s (DE:) Monsanto (NYSE:) division on Wednesday lost a final appeal in a long-running French legal battle in which the crop chemical maker has been held liable for the accidental inhalation of a weedkiller by a crop farmer.

Monsanto had been trying to overturn a decision by an appeals court in 2019 that had found the company’s product safety information to have been inadequate in relation to the accident involving farmer Paul Francois in 2004.

France’s highest court rejected Monsanto’s latest appeal in a ruling published on Wednesday, opening the way for another court to decide on what damages should be awarded to Francois.

The farmer has argued that the fumes he inhaled from the weedkiller Lasso, a product that was subsequently withdrawn from the French market, caused neurological problems, including memory loss, fainting and headaches.

Bayer said in an emailed statement that it was reviewing the court ruling. Bayer also said in the statement that court-appointed medical experts had found previously that the incident did not cause the illnesses cited by Francois.

Crop protection products “do not present a risk to human health if they are used under the conditions of use defined in the context of their marketing authorisation,” Bayer said.

Anti-pesticide group Generations Futures, which has supported Francois in his court case, said it welcomed “this historic decision in which an agro-chemical multinational is at last found liable for the harm caused to this courageous farmer.”

Francois has previously sought damages of around 1 million euros ($1.2 million).

Bayer, which acquired Monsanto for $63 billion in 2018, has been facing a wave of litigation in the United States over allegations that Monsanto’s glyphosate-based weedkiller Roundup causes cancer.

Bayer, which argues Roundup is safe, is trying to settle the litigation through a proposed $11 billion payment.

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How High Are Copper Prices Going ? – Growing Your Money

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How High Are Copper Prices Going ?

Copper Futures—Copper futures in the December contract is trading higher for the 3rd consecutive session up another 465 points at 3.1955 a pound hitting a 2 ½ year high continuing its bullish momentum as this trend is strong to the upside.

Copper prices are trading far above their 20 and 100 day moving average as this trend continues to accelerate on a weekly basis as the housing market in the United States is extremely strong therefore demand for copper at the present time remains high as I still do not believe a top has been formed.

At the current time I’m not involved, however I do believe the entire precious metal sector is headed higher as I am keeping a close eye on gold and silver as I see no reason to be short copper and if you are long a futures contract continue to place the stop loss under the 10-day low which stands at the 3.03 level as an exit strategy.

The next major level of resistance is between the 3.30 / 3.50 level as there is still room to run to the upside as the volatility could even increase exponentially as historically speaking copper can have crazy price swings on a daily basis.

TREND:HIGHER

CHART STRUCTURE: POOR

VOLATILITY: HIGH

 

If you are looking to contact Michael Seery (CTA—COMMODITY TRADING ADVISOR) at 1-630-408-3325 I will be more than happy to help you with your trading or visit www.seeryfutures.com 

 

TWITTER—@seeryfutures 

 

 Email: mseery@seeryfutures.com

If you’re looking to open a Trading Account click on this link www.admis.com 

 

There is a substantial risk of loss in futures and futures options. Furthermore, Seery Futures is not responsible for the accuracy of the information contained on linked sites. Trading futures and options is Not appropriate for every investor.

 



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