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Opec deal signals tougher start to 2021 for tanker owners

Oil cartel and Russia to return 500,000 barrels per day to market, a quarter of what was expected, after contentious meetings this week

Addition equates to one more aframax loading daily, offering little cheer for owners contemplating 140 fewer tankers exporting crude each month from the Middle East Gulf, Lloyd’s List Intelligence data show

THERE is likely to be little respite for tanker owners in the first quarter of next year after a decision by oil producers to supply less crude to the market in January than previously agreed.

The Organisation of the Petroleum Exporting Countries plus Russia will add 500,000 barrels per day to production targets from next month, a quarter of the 2m bpd first outlined in a deal formed last April.

The volumes equate to just one additional aframax tanker loading daily and will do little to boost demand for the global crude fleet or lift rates.

Opec plus its allies agreed to the more gradual return to higher production after protracted debate at meetings this week.

The cartel cut 9.7m bpd from output from April to arrest freefalling oil prices after the pandemic demand shock.

This agreement brings production cuts down to 7.2m bpd, from 7.7m bpd.

About 50m bpd of the 100m bpd crude market was shipped by sea in 2019. Lockdown and travel restrictions across Europe and north American as governments deal with the pandemic’s second wave have again dented demand for crude and transport fuels cutting cargoes, especially from the Middle East Gulf.

“The optimism of tanker owners is draining away as rates struggle for upward moment amid tanker demand remaining significantly below one year and a significant over-supply of tonnage,” said Alphatanker in a weekly report.

 

Exports from Opec countries in the Middle East Gulf are indicative of freefalling demand this year.

Preliminary shipments for November were at 13.3m bpd, the lowest for 2020, though this figure might exclude loadings from the five days of the month.

November volumes are mirroring October exports, which were 19.6% lower than the prior-year period, at 15.6m bpd, data from Lloyd’s List Intelligence shows. Some 148 fewer tankers loaded in the month than October 2019, according to data.

Opec said it will hold monthly meetings to reassess market conditions, to see whether further “production adjustments” are needed. However, no more than 500,000 bpd will be returned to the market at any one time, the statement said.

Brent crude rallied on news of the agreement, trading at nearly $50 per barrel, also returning the futures market into backwardation.

That means the front-month price is higher than the later months, a reversal of the steep contango seen six months ago.

The anticipated seasonal boost to tanker markets over the fourth quarter has failed to materialise, as refineries keep throughput at lower levels and inventories draw.

That has curtailed additional production of gasoil and kerosene for winter heating in Asia and North America.

Time charter equivalent earnings on the benchmark very large crude carrier route to China from the Middle East Gulf averaged $7,109 per day in November, according to the London-based Baltic Exchange.

That is less than the $9,000 daily needed to cover operating expenses and compares to $9,974 per day in the prior month and the record of $176,000 set in April.

That rate reflected record shipments from Saudi Arabia just before it ended an oil price war with Russia, as the pandemic slashed demand by one third.

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