Surprise OPEC+ production lowers Pummel tanker inventories Ship’s crew

By Sharon Cho (Bloomberg) —

OPEC+’s shock decision to cut oil production is not only changing the outlook for crude prices, but also impacting the outlook for the tanker companies that transport the barrels.

Oil tanker pureplays, including Frontline Plc, Euronav NV and DHT Holdings Inc., all slumped Monday after the producer alliance surprised the market with a surprise production cut of about 1 million barrels a day.

About 40% of the world’s crude oil production is transported by sea, meaning significant cargo loss is likely. Clarksons Securities AS, a unit of the world’s largest shipbroker, said the resulting drop in cargo could temporarily see its revenues plummet by about a third for the world’s largest supertankers.

“That’s an obvious disadvantage,” said Halvor Ellefsen, a tanker broker at Fearnleys Shipbrokers UK Ltd. who has been in the industry for almost four decades. “That’s not what owners need.”

Russia’s invasion of Ukraine and subsequent Western sanctions had tilted the market in favor of owners.

Ships that previously shipped oil a few thousand miles to Europe now have to transport it all the way to Asia, keeping tankers busy longer and increasing ships’ revenues.

China’s exit from the Covid-zero policy has also boosted the nation’s economy, which has long been the engine of oil demand growth, with buyers shipping millions of barrels of additional crude.

According to data from Clarkson Research Services Ltd. tariffs for modern ships with equipment for cheap fuel earn not far from $ 100,000 per day, which is a very high level in historical comparison.

The US could also limit some exports in the coming months as its own refineries are likely to ramp up processing as they come out of seasonal maintenance, further reducing cargo flow, Ellefsen said.

Clarksons analyst Frode Morkedal said the OPEC+ move is precautionary and therefore may not have a lasting impact on tanker demand if consumption picks up.

The number of newly built ships is also low, which should support rates, he said.

–Assisted by Alex Longley and Alaric Nightingale.

© 2023 Bloomberg LP

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