Market insight

By

Katerina Restis

Tanker Chartering

Last week Libya’s oil production operations were disrupted as it was reported that local Libyan tribes interrupted output at the the El Feel and Sharara fields and blocked the transportation of crude oil to the Zawiya export terminal. Overall the aforesaid oil fields produce approximately 70,000bpd and 300,00bpd, comprising the nation’s leading producing fields. Particularly, Sharara field is operated by NOC in a joint venture with Spain’s Repsol, France’s Total, Austria’s OMV and Norway’s Equinor and El Feel is operated by the NOC and Italy’s Eni.

Libya’s state oil company has recently professed a force majeure after exports from the eastern ports of Brega, Ras Lanuf, Hariga, Zueitina and Sidra were blocked. Accordingly, this has overall resulted to almost 800,000bp of the total 1.23mbd being cut off from the country’s crude oil output, a figure that could get even smaller. So far, the financial losses are calculated at approximately USD 40 million/day as reported by NOC, with the above disruption being the biggest on record since the September attacks to the Middle East oil facilities.

The knee jerk reaction was an increase of oil prices, which nonetheless failed to last.  The fast increase of oil production from non-OPEC producers (United States, Brazil, Guyana, and Norway) together with the recent outbreak of the coronavirus in China, have shifted investors’ expectations in regards to future demand for the commodity and have already pushed oil prices down.

Overall, discussions and concerns are focused on how long Libya’s main export terminals will remain closed for, with Europe being Libya’s largest oil importer. If no quick resolution is provided fuel loadings from the Mediterranean will continue to drop. It is argued that local refineries will source crude from other areas such as the Unites States, Africa and NW Europe. Therefore lengthier hauls of Aframax and Suezmax vessels may be reinforced, while Black Sea loadings could also contest with consumers East of Suez. 

Overall, NOC’s declaration of force majeure can allow Libya, which holds Africa’s largest-proven oil reserves, to legally suspend delivery contracts. Having said that, pressure from the negative financial effects on participants will hopefully lead to a resolution of the current turmoil sooner rather than later. Obviously this is a complex political condition with multiple effects and economic impact while the recent Berlin summit tried to take a step closer to achieving peace in the area.

Last week the US Embassy in Libya urged for an immediate reopening of oil production fields in view of risks intensifying the humanitarian emergency in the country. Looking forward, it is challenging to forecast when Libyan crude production will resume. Output and exports may be speedily restored, however if the disruption continues beyond the upcoming refinery maintenance season in Europe, then the market impact will be sizeable and changes in trade flows even more apparent.

Chartering (Wet:

Soft-/ Dry: Soft-)

The dry bulk market has lost further ground last week, with Capesize average earnings taking a significant hit and the Chinese New Year celebrations adding to the overall sluggishness of the market. The BDI today (28/01/2020) closed at 539 points, down by 7 points compared to Monday’s (27/01/2019) levels and decreased by 150 points when compared to previous Tuesday’s closing (21/01/2020). Additional losses were recorded in the crude carriers market, with some routes appearing to bottoming out though as last week came to an end. The BDTI today (28/01/2020) closed at 1,093, decreased by 134 points and the BCTI at 625, a decrease of 60 points compared to previous Tuesday’s (21/01/2020) levels.

Sale & Purchase (Wet:

Firm+ / Dry: Stable-)

SnP activity remains firm, with strong demand for crude carriers mainly driving appetite at the moment, while it seems that the gap between Buyers and Sellers’ ideas is narrowing as far as dry bulk vessels are concerned. In the tanker sector we had the sale of the “MADISON ORCA” (319,869dwt-blt ’10, S. Korea), which was sold to South Korean owner, Polaris, for a price in the region of $50.0m. On the dry bulker side sector we had the sale of the “AQUACARRIER” (175,935dwt-blt ’11, China), which was sold to Singaporean buyers, for a price in the region of $18.0m.

Newbuilding (Wet:

Firm+ / Dry: Stable+)

Global newbuilding activity remains healthy, with the long list of recently surfacing orders reaffirming the positive momentum in the shipbuilding industry. Demand continues to be mainly driven by strong appetite for tankers, with Pan Ocean’s recent MR order at Hyundai Mipo reaffirming the popularity of the size that has been the most sought after on the second –hand market front during last year as well.  At the same time shipyards in the Far East continue to invest in eco-friendly designs that will meet current and future regulation requirements, while European Shipbuilding seems to be delaying in riding this wave, with Uljanik being the latest yard in the region that is forced to auction part of its assets. In terms of recently reported deals, South Korean owner, Pan Ocean, placed an order for four firm MR tankers (50,000 dwt) at Hyundai Vinashin, in Vietnam for a price in the region of $34.0m and delivery set in 2021.

Demolition (Wet:

Stable+/ Dry: Stable+)

The demolition market sustained its levels for yet another week, with large ldt units fetching bids north of $400/ldt. With prices out of the Indian subcontinent being at admittedly healthy levels for a few weeks now, the question in everyone’s mind is how long this healthy market will last for, given that a number of cash buyers have already secured big ldt vessels and that the number of demo candidates continues to increase. At the moment, India remains the most popular demo destination in the region, with offerings close to the recent highs despite the fact that local scrap steel prices in the country have seen discounts in the past days, while competition from Bangladesh seems to be easing further, with cash buyers appearing less willing to position themselves in the current market. Average prices in the different markets this week for tankers ranged between $240-400/ldt and those for dry bulk units between $230-390/ldt.

Intermodal Report Week 4 2020

Source: Intermodal