Month: March 2023

By Greg Miller of FreightWaves,

The Ukraine-Russia war has rerouted crude tanker flows over the past year, equating to higher profits for shipowners. But the upside is not evenly spread. Midsize crude tankers have been the big beneficiaries.

It’s not only that Russian crude export terminals can’t handle larger tankers. A highly unusual transport pattern for U.S. crude exports has emerged, creating another war-induced headwind for owners of larger tonnage.

VLCCs cannibalize trans-Atlantic trade

Prior to the war, U.S. crude exports to Europe were loaded aboard midsize Aframaxes (tankers with capacity of 750,000 barrels) and Suezmaxes (1 million barrels). U.S. crude exports to Asia were loaded aboard very large crude carriers (VLCCs; 2 million barrels).

Europe hiked its crude imports from the U.S. in the wake of the invasion, replacing seaborne imports from Russia, which have been banned since Dec. 5.

Much of Europe’s incremental volume from the U.S. has moved aboard VLCCs, not midsize tankers — a transport model that was extremely rare before Russia’s invasion of Ukraine. 

“Virtually all the additional [U.S.] sales to Europe were done on VLCCs,” wrote Erik Broekhuizen, manager of marine research at Poten & Partners, in a report Friday.

Tanker demand is measured in ton-miles: volume multiplied by distance. If ships switch to shorter routes, it’s a negative for demand, and thus, for spot rates.

VLCCs have “cannibalized” the shorter-haul U.S.-Europe business of Aframaxes and Suezmaxes. Simultaneously, China has increased imports from Russia, limiting Chinese demand for longer-haul U.S. exports. Both are negative for VLCC voyage distance.

“The problem is that more VLCCs are arriving in the Atlantic than leaving,” said ship brokerage BRS on Monday. “The latest data suggests that 108 VLCCs are currently trading west of Suez and that more are arriving every day, making the Atlantic crude tanker market more competitive.

“Preliminary information suggests that the number of VLCCs transporting U.S. crude to Europe could hit a record over the coming weeks,” BRS said.

VLCCs now ‘world’s largest shuttle tankers’

Changes in crude trade patterns since the war “have benefited the midsize sectors given that the main Russian load ports in the Baltic, the Black Sea and the Far East are all inaccessible to VLCCs,” explained Kevin Mackay, CEO of Teekay Tankers (NYSE: TNK), during a conference call Thursday.

Clarksons Securities estimated Monday that spot rates of non-eco-designed VLCCs were $59,700 per day. That’s a highly profitable rate, but Suezmaxes — with half the carrying capacity of VLCCs — were earning $65,600 per day.

“VLCCs are now regularly cannibalizing multiple cargoes that would usually be transported on two Suezmaxes or three Aframaxes,” said BRS, noting that VLCCs are more competitive than midsized tankers on a dollar-per-ton basis.

Consequently, VLCCs have become “the world’s largest shuttle tankers,” BRS said.

Lars Barstad, CEO of Frontline (NYSE: FRO), said during a conference call Tuesday, “With the situation around oil being redirected from Russia, you’re basically seeing both Aframaxes and Suezmaxes getting drawn into that trade. That’s giving VLCCs an opportunity to enter [midsize tanker] markets.

“VLCCs have started trading Suezmax stems [cargoes]. So right now, you’re seeing a high number of fixtures where VLCCs are stepping in to what you’d typically call a Suezmax trade — U.S. Gulf to UK Continent [Europe], for example. Various asset classes are eating into each other’s business segments.”

More ‘reverse lightering’ in US Gulf

U.S. Gulf ports do not have the water depth to accommodate fully loaded VLCCs. Instead, these cargoes are “reverse lightered.” They are loaded first on Aframaxes or Suezmaxes, with the oil then moved to VLCCs via ship-to-ship transfers.

“Since the cannibalization trend arrived in mid-2022, charterers have become better at utilizing infrastructure in the U.S. Gulf,” explained BRS. “[They are] part-loading in ports and booking reverse lightering in advance to more efficiently load VLCCs.”

BRS also pointed out the increased use of VLCCs for shorter-haul shipments to Europe is tying up more Aframaxes and Suezmaxes in reverse-lightering duties in the U.S. Gulf, another plus for midsize tanker rates.

China favoring Russian crude over US crude

The U.S.-China crude trade, because of its extreme distance, is a key variable in global VLCC demand. It takes seven weeks to travel from the U.S. to China via the Cape of Good Hope at 13 knots.

According to BRS, “Long-haul U.S. crude exports remained relatively flat year on year [in 2022], which, when viewed in the context of the surge in total U.S. crude exports, was viewed as disappointing, especially by VLCC owners.”

U.S. crude shipments to China averaged around 200,000 barrels per day last year, in line with 2021 volumes. They have remained at the same level in the first two months of this year.

“Considering the backdrop of steadily rising Chinese crude runs, this suggests that U.S. barrels have been losing out to soaring imports of cut-price Russian barrels,” said BRS. (Crude shipments from Russia to China are mainly shipped aboard the so-called “shadow fleet,” comprising vessels with opaque ownership that do not trade in Western markets.)

Broekhuizen of Poten is optimistic on U.S.-China crude flows in the remainder of this year. “We expect more crude exports from the U.S. Gulf in 2023, [and] we anticipate that less of the incremental barrels will go to Europe,” he said. “This means that more crude may find its way to Asia, especially to China.

“For the VLCC markets, this means more tonnage will likely be employed on the long-haul routes to Asia, boosting ton-mile demand and freight rates. As a result, we expect VLCCs will become less competitive in the trans-Atlantic trade and Suezmaxes and Aframaxes will regain market share.”

Earnings roundup

On Tuesday, Frontline reported net income of $240.1 million for the fourth quarter of 2022 versus $19.8 million in Q4 2021. Adjusted earnings of 97 cents per share came in below the consensus estimate of $1.08. The latest period was Frontline’s best quarter since Q2 2008.

Frontline owns VLCCs, Suezmaxes, Aframaxes and product tankers. Its spot VLCCs earned an average of $63,200 per day in Q4 2022, nearly four times rates a year ago. The company has 87% of its available VLCC days booked for Q1 2023 at $58,300 per day.

Also on Tuesday, International Seaways reported net income of $218.4 million for Q4 2022 compared to a loss of $34 million in Q4 2021. Adjusted earnings of $4.21 per share came in much higher than the consensus forecast for $3.92. The latest period was the best quarter since the company’s listing in 2016.

International Seaway’s owns a fleet of VLCCs, Suezmaxes, Aframaxes and product tankers. Its spot VLCCs earned an average of $64,596 per day in the latest quarter, compared to $14,326 per day the year before. It has 83% of its available spot VLCCs days for Q1 2023 booked at $46,600 per day.

The US State Department Rewards for Justice Program has announced a reward offer of up to $10 million for any information which leads to the disruption of financial mechanisms of Lebanon’s Hezbollah.

“Mohammad Bazzi’s been arrested, but Hezbollah is still collecting revenue through people like him. So you may be eligible for a reward if you submit information about Hezbollah’s financial network,” Rewards for Justice said in a tweet.

The call for information and promotion of the $10 million reward possibility came on the heels of the arrest of an alleged top Hezbollah financier, 58-year old Mohammad Bazzi on Friday in Bucharest, Romania. It’s unclear whether a tip alerted US and allied security services to his whereabouts.

The State Dept-run program described on its website, “Hizballah relies on financing and facilitation networks to sustain operations and launch attacks globally.”

“Hizballah earns almost one billion dollars annually through direct financial support from Iran, international businesses and investments, donor networks, corruption, and money laundering activities,” it added.

Previously the same amount, $10 million, had been offered for information regarding the whereabouts of Bazzi, previously dubbed by the US a “global terrorist”. 

Rewards for Justice this week said it will continuing offering these huge reward payments for further information which uncovers and thwarts revenue sources for Hezbollah and its donors, as well as financial institutions it uses for transactions. 

Mohammad Ibrahim Bazzi was labeled a “global terrorist” by the United States in 2018.https://t.co/OnbjjukmmJ

— Radio Free Europe/Radio Liberty (@RFERL) February 25, 2023

Likely the large reward offering is also due to the fact that Hezbollah as an organization is well-known to be highly secretive. Even in Lebanon, where the paramilitary group is deeply involved in local politics and even runs charitable and community organizations, its supporters are known for staying tight-lipped on Hezbollah’s operations and hideouts of top commanders. Its local and regional popularity also is due to it periodically going to war against Israel.

Authored by Paul Joseph Watson via Summit News,

UK health authorities considered ordering the euthanization of all pet cats in the country during the first COVID outbreak, it has been revealed.

Ex-Deputy Health Minister Lord James Bethell made the admission while trying to argue that governments were caught unawares in how to respond to the virus, remarking, “We shouldn’t forget… how little we understood about this disease.”

“There was a moment we were very unclear about whether domestic pets could transmit the disease,” he said.

“In fact, there was an idea at one moment that we might have to ask the public to exterminate all the cats in Britain. Can you imagine what would have happened if we had wanted to do that?”

Bethell claimed that “for a moment” there was “a bit of evidence around” the idea after a Siamese cat became the first in Britain to contract COVID-19, but that the plan was “closed down” fairly quickly.

Cat owners were told not to kiss their pets and to observe “observe very careful hygiene” around them while keeping them indoors if a member of the household caught COVID.

“There was an idea at one moment that we may have to ask the public to exterminate all the cats in Britain.”

Former Health Minister Lord Bethell discusses the early government response to the Covid pandemic. pic.twitter.com/YWyp32zPML

— Channel 4 News (@Channel4News) March 1, 2023

Denmark subsequently ordered a cull of its mink population thought to be carrying the virus, although Prime Minister Mette Frederiksen subsequently had to apologize for the order, admitting it was illegal.

Bethell made the comments in light of the leak of tens of thousands of WhatsApp messages which shed light on the government’s botched response, which included the failure to carry out tests on all residents entering care homes.

Mandating people to kill their beloved pets would have almost certainly failed as a policy given that vast numbers of people would have refused to do so.

Killing pet cats was just one of numerous horrors almost visited on the British public in pursuit of a lockdown that went on to have a devastating impact and caused more harm than good.

As we previously highlighted, another proposal was to separate children from their parents and hold them in quarantine camps if they were infected with the virus.

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A new report by Sandvine has revealed the web applications responsible for the world’s most downstream internet traffic.

As Statista’s Martin Armstrong points out, underlining the popularity of streaming services, Netflix accounts for the most megabytes with 14.9 percent.

You will find more infographics at Statista

YouTube isn’t too far behind with 11.4 percent.

Further back but still with a significant share, Amazon Prime Video is responsible for 3.7 percent. Adding to video streaming’s contribution, Disney+ has a share of 4.5 percent.

Social media and gaming are the other standout categories, with TikTok, Facebook, Playstation and Xbox creating large amounts of global downstream traffic in 2022.

Authored by Tsvetana Paraskova via OilPrice.com,

• North African countries are buying significantly more Russian fuel following the EU ban.

• Signs are emerging that some of those products could be headed for re-export to Europe.

• Morocco saw imports of 2 million barrels of Russian diesel in January, compared to just 600,000 barrels for the whole year 2021.

North Africa has become a key export outlet of Russia’s diesel and other petroleum products after the EU embargo on imports of Russian fuels took effect in early February.    

African countries on the Mediterranean, as well as Turkey, had started taking in more Russian fuels even before the Western ban. Now signs are emerging that some of those products could be headed for re-export to Europe, analysts say. But they also note that even if this were the case, it’s difficult to ascertain the true origin of a cargo blended with other products.  

And the EU may not be too strict in looking to remove every possible Russian barrel of oil product from its market, considering the major dislocation in global oil trade and the goal of the Western nations to punish Putin but keep his oil flowing around the world. 

The EU banned—effective February 5—seaborne imports of Russian refined oil products and around 1 million barrels per day (bpd) of Russian diesel, naphtha, and other fuels need to find a home elsewhere if Moscow wants to continue getting money for those products. The flow of Russian fuels to third countries is also regulated by price caps, similar to the cap on Russian crude, if the trade is carried out through Western insurers. The cap on Russian diesel is $100 per barrel, while the cap on lower-cost petroleum products is set at $45 a barrel. 

Europe is on track to import this month the highest volumes of diesel from the Middle East and Asia in seven years as the EU turns to alternative supply after the ban on imports of Russian diesel and other fuels took effect.

At the same time, Russian oil product flows to North Africa are surging. Morocco, for example, saw imports of 2 million barrels of Russian diesel in January, compared to just 600,000 barrels for the whole year 2021, according to Kpler data cited by The Wall Street Journal. Tunisia has also seen a surge in imports of Russian petroleum products – to 2.8 million barrels in January and another estimated 3.1 million barrels in February, after negligible volumes imported prior to the Russian invasion of Ukraine.  

According to analysts, those countries will not be consuming all the Russian oil products. North Africa isn’t boosting its refining processing, either. This leaves one plausible explanation for the jump in imports of Russian fuels—re-export to other countries, including Europe, after blending with products of non-Russian origin. 

“Trust me, we are not witnessing some renaissance in Maghrebi refining,” Viktor Katona, a senior oil analyst with Kpler, told the Journal. A part of the Russian oil products will end up in Europe, according to Katona. 

There has been a recent surge in Russian clean petroleum products (CPP) on water, according to Vortexa. 

Currently 87 vessels carrying Russian diesel are on the water, Ioannis Papadimitriou, Senior Freight Analyst at Vortexa, wrote on Friday. Of those, 63 vessels carrying 18 million barrels are currently signaling non-European/non-Mediterranean destinations, or Mediterranean waypoints or ship to ship (STS) transfer zones.  

“The remainder are mainly signalling the Mediterranean, a trend that was starting to appear prior to the ban, with the ultimate destinations being North Africa and to a greater extent Turkey – an opportunistic post-war buyer of Russian oil and gas,” Vortexa’s Papadimitriou said. 

“Vessels do not reflect idle or a ‘wait-and-see’ behavior at great scale, and hence do not display an enormous challenge in finding a buyer in non-traditional markets.”

Analysts and market observers will now have to see how long it would take for STS cargoes to find and reach their final destinations, and if potential major logistics delays could threaten the pace of Russian oil product exports, according to Papadimitriou.  

“Hence, in answering the question whether Russia is finding a way to maintain CPP exports in this new reality, the answer lies closer to a yes than a no.”  

The final major piece of the Brexit puzzle – a solution to the problem of the movement of goods between the European Single Market and the United Kingdom via Northern Ireland – has been agreed upon.

Named the ‘Windsor Framework’ and the result of a meeting between President of the European Commission Ursula von der Leyen and UK Prime Minister Rishi Sunak, the new agreement looks set to go through with little friction.

Despite the major political and economic ramifications of the deal, Statista’s Martin Armstrong reports that a survey by YouGov conducted since the Windsor Framework announcement indicates a significant lack of interest in the issue among the British public.

You will find more infographics at Statista

When asked to what degree they were following the story, just 6 percent said ‘very closely’, combined with an additional 22 percent that were engaged ‘fairly closely’ with the developments.

A combined 72 percent said they were either following it ‘not very closely’, not at all despite being aware of it, or not at all due to a lack of awareness.