Oil shipping rates from US to Asia touch 3-year high
An offshore oil platform in Huntington Beach, California, US. Reuters
The United States last week imposed sanctions on two units of China’s COSCO, which operates more than 50 supertankers, alleging the units violated US sanctions on Iran. That action prompted US Gulf Coast exporters to hold back chartering COSCO-owned vessels, traders and shipbrokers said.
This week, suggested rates for Very Large Crude Carriers (VLCCs) from the US Gulf Coast to China vaulted to $9.8 million, up from $6.2 million in early September, according to ship broker McQuilling Services. VLCCs carry around 2 million barrels apiece.
“To attract a ship to ballast (into the Atlantic market) it’s going to cost about $10 million” for US Gulf Coast shipments bound for China or South Korea, said another US shipbroker who brokers about 20 vessels per month.
Friday’s highest quote was for $9.5 million to book a VLCC from the US Gulf Coast to China for charterer Atlantic Trading & Marketing, a unit of Total, shipbrokers said. The deal did not go through, they added. Atlantic Trading declined to comment.
No other transactions for supertankers from the US Gulf Coast to Asia have been executed this week, shipbrokers said.
The surge in freight costs has narrowed the window to profitably export US crude to Asia and left some US crude exporters reluctant to book vessels at the higher rates. That could limit November loadings and exports unless more vessels become available in coming weeks, traders said.
“People are nervous about locking freight in at these high levels, which is why the last week has been so quiet,” one US crude oil trader said.
Occidental Petroleum Corporation last week replaced a COSCO-operated supertanker, Coswish Lake, following the US sanctions, by chartering smaller vessels from Texas to destinations in Asia, shipbrokers said.
The Coswish Lake had anchored off Corpus Christi, Texas, since Sept. 23 and departed on Sunday without loading crude, according to Refinitiv Eikon data.
Occidental did not respond to requests for comment.
US oil production growth is decelerating gradually in response to lower prices, which should reduce predicted over-supply in 2020 and force the global oil market back towards balance.
Domestic crude production fell 276,000 barrels per day to 11.806 million bpd in July, according to data published by the US Energy Information Administration on Monday.
The month-on-month reduction was entirely attributable to the Gulf of Mexico, where output fell 332,000 bpd, because many offshore platforms were shut due to the threat from tropical storm Barry.
Onshore production from the Lower 48 states, much of it from shale plays, actually increased by 63,000 bpd to a multi-decade high of 9.778 million bpd.
Even onshore, however, there were signs the frenzied production growth of 2017 and 2018 has run out of momentum, as shale firms throttle back in response to lower prices.
Onshore output was up by 1.149 million bpd in July compared with the same month a year earlier, but growth has slowed progressively from 1.900 million bpd in August 2018.
Of the major oil-producing states, Texas has reported the sharpest and most consistent slowdown, with more gradual decelerations in New Mexico and North Dakota.
The second US shale oil boom (2017-18) is ending for much the same reasons as the first (2012-2014): high prices encouraged over-production and global oil consumption growth cooled.
Experience suggests changes in oil prices filter through to drilling with an average delay of around 4 months and to output with a total lag of around 12 months.
Production in July, therefore, reflected the relatively high prices that prevailed before oil prices started to slump in October 2018.
Since then, as prices have tumbled, the number of rigs drilling for oil has fallen by 175 or 20%, according to oilfield services company Baker Hughes.
Lower prices and drilling activity should start to filter through into even slower growth in Lower 48 output towards the end of the year and into 2020.
Prices will remain low to enforce a US drilling and production slowdown unless and until there are stronger indications of economic growth next year.
Meanwhile, the S&P 500 and Dow suffered their worst tumbles in over a month on Tuesday after data showed US factory activity shrank in September to its weakest in over a decade, ratcheting up fears that the US-China trade war is hobbling the world’s largest economy.
Investors moved to the safety of US Treasuries after the ISM report showed its manufacturing activity index at 47.8, falling further from August’s sharp contraction and below economists’ expectations of 50.1. A reading below 50 indicates contraction.
With lingering trade tensions weighing on exports, the US data mirrored similar patterns in the euro zone, Japan, the United Kingdom and China.
Reuters
