Poten: Repositioning the Empties

Exports of U.S. crude oil via very large crude carriers (VLCC) have doubled again this year, totaling 116 cargoes, or more than 10 cargoes per month, data from Poten and Partners’ weekly report shows.

Since lifting the oil export ban in 2016, the U.S. exported only 9 VLCC cargoes from the Gulf. This number jumped to 59 export cargoes in 2017.

“The rapid growth in U.S. exports has made the Atlantic Coast of the Americas, which also includes Venezuela, Brazil and Mexico, the second largest loading area for VLCCs in 2018, after the Middle East, but surpassing West Africa,” Poten said.

As explained, since the vast majority of VLCCs in the U.S. Gulf are loaded using reverse lightering, the real VLCC utilization in the region is probably underestimated based on these numbers.

According to APEX trade statistics, about 85% of VLCC voyages end up in Asia, including the West Coast of the Americas. Only 8% of VLCCs discharge in the Atlantic Basin, equivalent to about 27 vessels per month. This compares to 78 vessels that load in the same area in an average month.

The “empties” issue

As a result, there is a significant imbalance in the VLCC market, i.e. a lot of “empties” have to be repositioned from the Pacific to the Atlantic.

VLCCs have ballasted from the Far East back to the Middle East or West Africa for many years. However, with the growth in Atlantic Basin crude oil production, in particular from the U.S. Gulf, the distances that the vessels need to ballast to get back to a loading area have increased from around 6,000 miles to over 15,000 miles when repositioning an “empty” VLCC from China to the U.S. Gulf.

“These distances are important against the backdrop of the impending OPEC cuts. During the previous round of production cuts, Saudi Arabia disproportionately reduced its exports to the United States, to reduce the highly visible and widely followed U.S. inventories and boost oil prices. U.S. imports from Saudi Arabia fell from an average of 1.1 million barrels per day (mb/d) in 2016 to around 600,000 b/d in October 2017. This reduction of 500,000 b/d is equivalent to 7.5 VLCCs less per month coming to the U.S. Since then, Saudi exports to the U.S. have recovered to their previous levels,” Poten said.

“If the Saudis take the same approach this time around, they will again reduce the availability of VLCCs in an area that is already structurally short. Add to this the expectation that U.S. production (and exports) will grow by some 1 million b/d in 2019 and we can see the shortage of VLCCs in the Atlantic Basin increase further.”

Poten believes that this imbalance can only be resolved by ballasting vessels 15,000 miles from the Pacific, because this is the only area with a surplus of tonnage.

“While this development may not drive the tanker market by itself, it is a factor that needs to be considered and will provide some support for VLCC rates in the wake of the OPEC cuts,” the report concludes.

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