OPEC sees oil surplus falling in 2016

Updated 13 November 2015

OPEC sees oil surplus falling in 2016

LONDON: OPEC said its oil output fell in October and forecast supply from rival producers next year would decline for the first time since 2007 as low prices prompt investment cuts, reducing a global supply glut.
In a monthly report, the Organization of the Petroleum Exporting Countries said it pumped 31.38 million barrels per day (bpd) last month, down 256,000 bpd from September. That is the first decline since March, according to OPEC figures.
The forecast of a decline in supply outside OPEC, if realized, would be a further indication the group’s strategy is working.
OPEC last year abandoned a longstanding policy of propping up prices and instead raised output, seeking to recover market share taken by higher-cost rival production.
Oil is trading at around $45 a barrel, more than 50 percent below its price in June 2014.
“The recent decline in oil prices has encouraged additional oil demand,” OPEC said in the report.
“It has also provided a challenging market environment for some higher-cost crude oil production, which has already shown a slowdown.”
The group expects non-OPEC supply next year to fall by about 130,000 bpd, following growth of 720,000 bpd this year, “as nearly $200 billion of capex cutbacks this year and next create a gaping supply hole.”
Oil companies have canceled or put on hold projects around the world and OPEC expects output in the US, the biggest source of non-OPEC supply growth in recent years due to the shale boom, to be hit by reduced drilling activity.
OPEC production, which has surged since the policy shift of November 2014 led by record Saudi Arabian and Iraqi output, fell in October on export delays in Iraq and lower supply from Saudi Arabia and Kuwait, said the report, citing secondary sources.
The report points to a 560,000-bpd supply surplus in the market next year if the group keeps pumping at October’s rate, down from 750,000 bpd indicated in last month’s report.
For 2015 though, the report implies a much larger surplus of almost 1.8 million bpd due to high OPEC production and the still-growing rival supplies that have boosted inventories.
Underlining the current glut, OPEC said the market is in the midst of only the second period in a decade when inventories in developed economies have exceeded the five-year average by more than an “excessive” level of 150 million barrels. The first followed the 2008 financial crisis.
Inventories in OECD economies are currently 210 million barrels above the five-year average, OPEC said, more than they 180 million barrels above that average they stood at in early 2009.
“The build in global inventories is mainly the result of the increase in total supply outpacing growth in world oil demand over the first nine months of this year,” OPEC said.
OPEC left its 2016 oil demand forecasts unchanged, predicting the world would need 30.82 million bpd of OPEC crude and global demand would grow by 1.25 million bpd, marking a slowdown from 1.50 million bpd in 2015.

Tankers defer retrofits to cash in on freight rates

Updated 19 October 2019

Tankers defer retrofits to cash in on freight rates

  • The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week

SINGAPORE: Tankers that had been scheduled to install emissions-cutting equipment ahead of stricter pollution standards starting in 2020 have deferred their visits to the dry docks to capitalize on an unexpected surge in freight rates, three trade sources said.

US sanctions on subsidiaries of vast Chinese shipping fleet Cosco in September sparked a surge in global oil shipping rates as traders scrambled to find non-blacklisted vessels to get their oil to market.

The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week.

By comparison, prior to the sanctions, shipping crude from the US Gulf to China cost around $6 million-$8 million.

The extraordinary spike in freight rates proved too good to miss for some shipowners who were due to send vessels to the dry docks for lengthy retrofitting and maintenance work.

“We can confirm several owners have postponed dry docking earlier scheduled for the months of October and November to take advantage of the skyrocketing freight rates,” said Rahul Kapoor, head of maritime and trade research at IHS Markit in Singapore.

The shortage of ships to move crude oil was so acute that some shipowners also switched from carrying so-called “clean” or refined fuels like gasoline to “dirty” cargoes that include crude oil, despite the costs of having to clean them later.

“Current rate levels are a no-brainer for pushing back scrubber retrofitting,” said Kapoor.

Starting Jan. 1, 2020, the International Maritime Organization (IMO) requires the use of marine fuel with a sulfur limit of 0.5 percent, down from 3.5 percent currently, significantly inflating shippers’ fuel bills.

Only ships fitted with expensive exhaust cleaning systems, known as scrubbers, which can remove sulfur from emissions, will be allowed to continue burning cheaper high-sulfur fuels.

Ships must be sidelined for up to 60 days for fitting these, according to IHS Markit and DNV GL.

While freight rates have abruptly come off their recent highs, shipowners can still profit from the higher charges.

“One cargo loading at current elevated rate levels can not only finance the scrubber capex, but also account for extra costs incurred to install the scrubber at a later date,” said Kapoor, referring to the capital expenditure of fitting the scrubber.

Freight rates are expected to hold firm for the rest of the year.

“With seasonal demand support and tanker supply deficit still pronounced, we expect (fourth-quarter) tanker freight rates to stay elevated and end the year on a high note,” Kapoor said.