Empty supertankers reveal truths about today’s oil market

London — They are slowly ploghing their way across thousands of miles of ocean towards America’s Gulf of Mexico coastline. As they do, 12 empty supertankers also reveal a few truths about today’s global oil market.

In normal times, the vessels would be filled with heavy, high-sulphur Middle East oil for delivery to refineries in places such as Houston or New Orleans. Not now though. They are sailing cargo-less, a practice that vessel owners normally try to avoid because ships earn money by making deliveries.

The 12 vessels are making voyages of as much as 33,800km direct from Asia, all the way around SA, holding nothing but seawater for stability because Middle East producers are restricting supplies. Still, America’s booming volumes of light crude must still be exported, and there aren’t enough supertankers in the Atlantic Ocean for the job. So they’re coming empty.

“What’s driving this is a US oil market that’s looking relatively bearish with domestic production estimates trending higher, and persistent crude oil builds that we have seen for the last few weeks,” said Warren Patterson, head of commodities strategy at ING Bank in Amsterdam. “At the same time, oil cartel Opec cuts are supporting international grades such as Brent, creating an export incentive.”

The US both exports and imports large amounts of crude because the variety it pumps — especially newer supplies from shale formations — is very different from the type that’s found in the Middle East. Opec members are likely cutting heavier grades while American exports are predominantly lighter, Patterson said.

Petrol glut

By industry standards, American oil is considered light and low in sulphur, making it great for churning out petrol, with the result that a glut of the automotive fuel is starting to build up. By contrast, Middle East crude often needs more processing — not a problem for Gulf of Mexico plants that were designed specifically for the task — but it can have a smaller petrol yield.

“There is still going to be a lot of growth from US tight oil this year,” said James Davis, director of short-term global oil service at Facts Global Energy. “This will continue to push US exports up.”

Shippers are counting on the US exports to help the tanker market withstand supply restrictions by Opec and allies, including Russia. Industry analysts, who actually raised their estimates for what they think the ships will earn this year after the so-called Opec-plus pact was announced in December, are citing rising American shipments as a contributing factor.

There are usually three or four empty supertankers — very large crude carriers (VLCCs) in industry jargon — that would sale empty to the US at any one time, according to ship brokers.

The shift has produced knock-on effects around the shipping market. Daily earnings for the VLCCs, which can haul 2-million barrels of oil, on the benchmark Middle East-to-China route doubled to $29,337 in the past week, according to Baltic Exchange data.

“Following a fixing frenzy from the US Gulf Coast late last week, most available tonnage in the Atlantic basin has been soaked up,” said Espen Fjermestad, an analyst at Fearnley Securities in Oslo. “With ships ballasting West, rates have shifted up also in the East.”

Bloomberg