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Intermodal Weekly Report

12 Ιουνίου 2018.

ploioploriy1Market insight

By Katerina Restis

Tanker Chartering

As observed last month the price of oil hit its highest level since November 2014 reaching $80 per barrel. Global oil demand growth for 2018 was slightly revised from 1.5mb/d to 1.4mb/d, bearing the effect of higher oil prices. The geopolitical turmoil has caused elevated concerns over potential disruption to supplies.

The decision of the U.S. President Donald Trump to withdraw from the nuclear deal and re-impose sanctions on Iran caused markets to price in the impact of deteriorated Iranian crude exports. In particular, Iran produces about 2.4m barrels a day accounting for 4% of global oil supplies. However, the European Union is firm on keeping the agreement alive and not to pose sanctions on Tehran. Further, the IEA has stated that they would examine whether other producers would step in and offset a disruption to Iranian exports.

Accordingly, last week Saudi Arabia and Russia announced that OPEC and other members intend to lift supply and revive oil production, to make up for impending losses from Venezuela and Iran diminished output. In reaction to such announcement last week oil prices declined with notable the longest run of losses since February, 2018. Respectively, with projections of oil supplies shrinking and trembling prices, the two nations consented to restore some of the oil output they had freeze. 

OPEC and Russia produce more than 40% of the world’s oil. As per analysts and various producers inside OPEC, reaching an agreement in the upcoming OPEC meeting in Vienna seems challenging. It is argued that Saudi Arabia and Russia have nothing to gain from reduced output, and plenty to lose if oil prices continue last week’s sharp decline. According to IEA, since the 2016 agreed productions cuts, Saudi Arabia has decreased their daily oil output by almost 590k barrels per day, Russia 250k barrels and U.A.E. 141k barrels per day respectively. Overall the oil output cuts by OPEC and partners have brought oil supply and demand close to balance with IEA’s recent statement “mission accomplished” pretty much confirming this.

The economic and political distress affecting the oil-rich Venezuela has led to collapsing crude production even from the country’s mature oilfields. Such downfall in oil output has affected oil markets quicker than expected. The situation is disappointing as Venezuela’s oil industry is falling apart, while conditions in the country degrade, with increased corruption, problems with payments and equipment breaking down.  Furthermore, U.S. shale oil production is at record highs, with output doubling the last decade.

Iran and Venezuela are not the only foundations of geopolitical volatility causing disturbed oil prices. The ongoing acceleration of tensions between Saudi Arabia and Iran, continuing conflicts in Iraq, Libya, Syria and Yemen have significantly shaken the region. As reported, a direct military confrontation between Iran and Saudi Arabia is seen unlikely, while any degree of conflict intensification in the region would undermine stability. The IEA has advised that the recent geopolitical events have increased ambiguity over future global oil supplies. Worldwide, the economy is strong, with the IMF predicting 3.9% growth this year. Vigorous economic activity is an important feature in rising oil prices and thus we shall wait and see the outcome of OPEC and further members’ upcoming meeting and if an agreement will be achieved in reference to production output levels.

 

Chartering (Wet:Firm+/ Dry:Firm+)

 

With Capesize rates covering some of the recently lost ground, sentiment in the Dry Bulk market strengthened, while we are already seeing the positive effect on the rest of the sizes as well. The BDI today (05/06/2018) closed at 1,249 points, up by 56 points compared to Monday’s (04/06/2018) levels and increased by 192 points when compared to previous Tuesday’s closing (29/05/2018). With the exception of VL rates the ended the week on a positive note, downward pressure was seen almost across the board in the crude carriers market. The BDTI today (05/06/2018) closed at 745, decreased by 34 points and the BCTI at 541, a decrease of 28 points compared to previous Tuesday’s (29/05/2018) levels.

 

Sale & Purchase (Wet:Firm+/ Dry:Soft - )

 

Dry Bulk SnP activity was softer amidst the recent stalling of the market and Posidonia underway, while appetite for tankers resumed, with buyers focusing exclusively on vessels built  2000 onwards. On the tanker side we had the sale of the “IVER EXACT” (46,575dwt-blt ‘07, S. Korea), which was sold to Greek owner, Spring marine, for a price in the region of $14.0m. On the dry bulker side sector we had the sale of the “JIN FU” (50,700dwt-blt ‘01, Japan), which was sold to Chinese buyers, for a price in the region of $8.7m.

 

Newbuilding (Wet:Firm+/ Dry:Stable+)

 

The shipbuilding market remains busy and despite that fact that the summer season has officially kicked off last week, appetite for newbuildings remains very healthy indeed. Tanker orders almost monopolized the list of the most recently reported orders, further highlighting the very firm contracting activity in the sector that has seen in the first five months of the year an impressive increase of 59% in terms of number of vessels. Average newbuilding prices are also continuing their upward trend, with those for a VLCC now close to USD 90 million and above the respective ones in 2016 and 2017. The argument for placing an order ahead of upcoming regulations while prices are still low is therefore steadily weakening. Saying this, one could also argue that given the performance of the tanker sector, newbuilding prices were never actually low, as the earning potential of an asset is what renters it expensive or not and as far as earnings are concerned the tanker market, earnings have been disappointing. In terms of recently reported deals, US based owner, Guggenheim Capital, placed an order for two firm VLCC tankers (300,000 dwt) at DSME, in S. Korea for a price in the region of $90.0m and delivery set in 2020. 

 

Demolition (Wet:Firm+/ Dry:Firm+)

 

Although a number of people are off with Ramadan underway and the different Posidonia events kicking off mid-last week, activity in the demolition market remained firm in the past days and even resulted in strengthening prices against expectations. India remains the stronger bidder in the Indian subcontinent market and the appetite local cash buyers have been displaying seems to have incentivized their counterparts in Bangladesh to move a bit more aggressively in order to regain some market share. Saying this, there have been rumors of a softening market in Pakistan, but we have yet to see concluded deals out of the country that could confirm such trend. We still expect to see discounted levels across the board during the summer season, although this traditional slowdown might delay slightly this year. Average prices this week for tankers were at around $270-445/ldt and dry bulk units received about $260-435/ldt.

 

Wet Chartering

 

The crude carriers market witnessed a week of mixed sentiment, with VLCC rates edging up and rates for the rest of the sizes moving overall down. The extended weakening of oil prices has once again offered a bit of support to TCE levels via cheaper bunker prices, while the period market remained focused on longer periods, with a bit of pressure reflected on numbers during the past days. The different drivers of the crude oil market that have been pushing the price of the commodity down during the past days have been monopolizing everyone’s attention, with the next meeting of OPEC in Vienna expected to bring further volatility to prices.

This has been another positive week for Middle East VLCC rates that continue to improve on the back of elevated demand, while the busy market there has allowed for more balance in West Africa in terms of supply, boosting as a results numbers there as well.

The West Africa Suezmax on the other hand was a bit softer during the past days as fixing activity started to soften mid-week onwards, while a bit of pressure was also seen in the Med. Aframax rates also ended the week down, with a very slow Med resulting in a substantial drop in rates out of the region, while the Caribs market was the only positive exception on the back of healthy demand in the region resuming.

 

Dry Chartering

 

The significant positive reversal in the Capesize market that lost valuable ground during the second half of May, has given a much needed breather to the BDI that jumped above 1,200 points today. Rates for the rest of the sizes moved sideways last week, while period activity was particularly soft, solely focusing on the <83,000dwt range. The extended strength Capes are currently displaying has managed to lift sentiment across the entire market yesterday and today as well. Although a positive reversal was due, the fact that this took place at the very beginning of the summer season and while a number of people are off to attend the Posidonia week, is certainly a sign of a market that has been building good resistance overall during 2018 so far.

Capesize rates in the East jumped last week , with a very busy W. Australia/China supporting the positive momentum, while a more positive market was also witnessed in the Atlantic, where enquiry ex-Brazil started to improve, although the North Atlantic market was still sluggish for the big bulkers.

As expected, holidays in UK/ Greece at the beginning of last week brought a bit of pressure on the Panamax market that managed to regain its balance closer to the weekend on the back of improving activity in the Atlantic and solid gains out of ECSA more specifically.

The smaller sizes also saw some improvements closer to Friday in the Atlantic, while trading in the Pacific remained slow. The period market was very quiet throughout the week, while we expect to see improved numbers during the following days as overall sentiment turns more positive again.

 

Analysts:

Eva Tzima

George Panagopoulos

 

 

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