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            january 21, 2020

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Oil market fraught with politics as never before, says BIMCO expert


The oil tanker market has been fraught with politics as never before, says Peter Sand, top analyst at shipowner/operator lobby BIMCO (Baltic and International Maritime Council).
For example, Iran, Libya and Venezuela face export limitations, due to sanctions and internal political troubles, reports London's Tanker Operator.
Politics are what matters, said Mr Sand. A business-as-usual scenario in the oil market is only delivering a steady, but not high, demand growth for the tanker market.
"Any upside to the tepid demand growth in 2019 is coming from the IMO 2020 regulations - again, politics - and trades affected by sanctions," said the report.
Oil majors are regularly announcing specs for the range of new compliant fuels being offered to comply with the January 1, 2020 deadline - fuel that, once produced, must be distributed.
If US sanctions on Iran shifts South Korean crude oil imports to the Gulf of Mexico, it will have a positive effect on the market, he said. Every VLCC cargo that departs from the Gulf of Mexico for South Korea instead of from Iran is a 150 per cent gain in tonne/mile demand.
For example, a VLCC sailing at 12.5 knots spends 54 days sailing 15,000 miles (+5% sea margin) from Houston, to Busan - while it takes only 22 days sailing from Kharg Island to South Korea, said the report.
Another potential upside to the crude market could be a resolution of the US/China trade war, which would restart Chinese imports of US crude. China's crude oil imports grew by 8.1 per cent in 1Q19, and only a very small amount came from the US, it said.
BIMCO doesn't expect that Iranian crude oil exports will fall much more than they already have, whether 'waivers' are in place or not, Mr Sand said. Among big Iranian buyers, are China, India and Turkey.
Exports have averaged around one million barrels per day since US sanctions were reintroduced on November 4, 2018, according to Lloyd's List Intelligence.
Mr Sand stressed that BIMCO also monitors other sources to verify what is happening, as it recognises that data on issues such as this comes with a high degree of uncertainty.
After rapid growth in 2017, when annual US oil product exports grew by 12.5 per cent (372,000 barrels per day), exports grew by only 3.3 per cent in 2018. Of the incremental growth last year, 44 per cent (156,000 barrels per day) was distillate fuel oil (15, or below, parts per million [ppm] sulphur content).
US distillate fuel oil is exactly what the shipping industry needs to burn to comply with the forthcoming low sulphur limit. If US refineries can further optimise their production towards distillate fuel oil - which would then be redistributed around the world to bunker hubs - it would be another positive factor for tanker demand, Mr Sand said.

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