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Global tanker tonne-mile demand falls on US energy independence

Total tonne miles from January to October 2019 was 9.1trn miles, which is 5.2% lower than for the same period a year earlier

Crude tanker tonne-mile demand reveals rising exports from the US Gulf are failing to compensate for US refiners importing less crude, especially from the Middle East

THE US is poised to become a net oil exporter for the first time in its history, though tonne-mile data suggests this may not positively benefit crude tanker trades as often suggested.

Analysis of crude tanker tonne-mile demand, which measures volumes carried over distance travelled, reveals rising exports from the US Gulf are failing to compensate for US refiners importing less crude, especially from the Middle East.

Tonne-mile demand is a key demand indicator for the crude tanker fleet.

These changing US Gulf crude flows led a global downturn in tonne-mile demand seen in the first 10 months of 2019.

Total tonne miles measured from January through to October are 5.2% lower than the same period a year earlier, at 9.1trn miles, Lloyd’s List Intelligence data shows. Last year’s figure was 9.6trn miles, nearly 500bn miles more.

US crude exports are 35% higher, at nearly 2.9m barrels per day, but tonne-mile demand export growth is measured 21% higher, Lloyd’s List Intelligence data shows. That does not come close to offsetting the 46% fall in tonne-miles measured for US Gulf crude imports.

Lloyd’s List Intelligence data shows US Gulf/Caribbean imports generated 760bn tonne miles in the first 10 months of 2018. This year that figure stood at 410bn tonne miles over the same period.

 
 

These figures have implications for aframax, suezmax and very large crude carrier tanker sizes, which have gained the most from new markets generated by rising sales of American shale oil from the Permian basin now shipped to refineries in Asia and Europe.

Shale production has tripled US exports in just three years, with forecasts that the US will reach its goal of energy independence this quarter, when exports outpace imports. US exports are 35% higher year on year, at nearly 2.9m bpd.

The next biggest loss in tonne-mile demand seen in 2018 is for Iranian exports. Tonne-mile demand is down 67%, or 278bn miles lower, compared with 2018, as US unilateral sanctions applied throughout 2019 severely restrict exports.

Iraq has boosted exports, helping offset reductions in tonne miles on the Middle East to Asia routes, where declines are not as steep.

But in Europe, refineries have instead turned to Libya and West Africa to replace lost Iranian crude. Libya has strongly boosted exports in the past six months, further curbing tonne-mile demand for larger tankers, as ships travel shorter distances within the Mediterranean.

Venezuela’s contribution to lower tonne-mile demand growth is not as great as expected. US restrictions on Venezuelan exports have left volumes shipped 40% lower year on year. However tonne miles fell by only 7.9% over the same period. This reflects the greater volumes sailing east now sanctions prevent US Gulf refiners — formerly the biggest buyer — from importing oil from the government of Nicolás Maduro.

Factors that have reduced the impact of falling tonne-mile demand growth at a time of accelerating supply include those Iranian tankers used as floating storage. As many as 30 of the 56-ship fleet of Iranian tankers is mostly relegated to floating storage thanks to US sanctions, removing them from the market.

Earlier this year many newbuilding VLCCs also conducted their first voyage shipping clean products from Asia to the Atlantic basin, again reflecting oversupply in the first three quarters of 2019. And since the third quarter of the year many larger tankers have been temporarily removed from trading for retrofitting of scrubbers.

International Maritime Organization lower-sulphur marine fuel regulations, which come into force on January 1, have also boosted refinery runs.

But with volumes shipped in 2019 lower than 2018 levels refiners may be drawing stocks to partly meet this demand. Some 50m bpd is being shipped on the water, Lloyd’s List Intelligence data shows, compared with 53m bpd over the same period of 2018.

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