Tensions in the Gulf region haven’t had any particular impact in the tanker market, at least until now. In its latest weekly report, shipbroker Gibson said that “during the first week of July, the well documented arrest of the 300,000 dwt ‘Grace 1’ by the British government caused tensions to spike between Iran and the West. Iranian retaliations to arrest a British flagged vessel,the Stena Impero, in the Straits of Hormuz have seen numerous statements calling for calm amidst the mayhem of political games. The current state of affairs has sparked tales of the Suez Crisis and the Gulf War, so why has there been minimal impact on freight rates and crude prices?”
According to Gibson, “firstly, there hasn’t actually been any major disruption to flows through the region. The reported inspection of the 2,000 dwt MT Riah would barely have been newsworthy had it not been for the current media hysteria, but the recent seizure of the Stena Impero has made owners nervous. Furthermore, those looking to operate in the region that are not British linked may feel the current tit for tat measures between Iran and Britain, poses a lower risk to them to trade. If that is the case, when we take all British flagged product and crude carriers out of the total trading tanker pool, we lose only 2% of the global fleet. However, the British managed VLCC ‘Mesdar’ spooked markets when it seemed to change course abruptly to Iran before heading back into the Gulf. Although there were attacks on five non-British operated vessels in the Gulf, Iran has denied any involvement in these incidents”.
“Secondly, global demand growth has slowed. The IEA has reported that Q1 2019 global oil demand growth slumped to 310,000 b/d, the lowest figure recorded since the end of 2011. Although factors in the market such as limited output from Iran and Venezuela and OPEC+ led production cuts should suggest a bullish tone, slower global economic growth and trade wars between major economies present a downside demand risk. However, the IEA has estimated a stronger second half of 2019 due to economic activity output improving and new plants ramp up, which could support prices later in the year”, Gibson said.
The shipbroker added that “lastly, the world remains oversupplied, hence the extended cut in OPEC+ production. In June, world oil supply topped the 100 mb/d mark for the first time since January, according to the IEA. There have been calls for OPEC+ to cut crude production to 28 million b/d – the lowest since 2003 – down from current levels of approximately 30 million b/d in an attempt to rebalance markets. Global inventories and stocks are still deemed too high. The benchmark Brent crude price briefly reached a yearly high of $74/bbl in April, but recent events in the Middle East Gulf have affected crude price volatility by only 4%, with prices barely moving from the mid-$60/bbl levels throughout. In comparison, when OPEC announced their first round of production cuts back in December, Brent moved 8% overnight. Production cuts have had a knock on effect for tanker rates. The benchmark VLCC rate – TD3 – has fallen 6 WS points to WS42 ($1.21/mt) since the start of July despite tensions in the Middle East Gulf”.
Gibson concluded that “the current situation has arisen from a backdrop of threats from Iran that they will retaliate for the arrest of Grace 1, with the attitude of ‘if we cannot export, no one will’. The increasing presence of the US and British navy in the Gulf has done little to ease tensions. However, at the moment owners have a sit and wait policy whilst acting with precaution throughout the region. The global knock on effect for the tanker market at the moment seems to be fairly muted: at present it seems business as usual. This may be one for Boris Johnson and new foreign secretary Dominic Raab to rescue”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide