Much has been made of soaring US shale gas production and the dramatic effect it is having on the country’s LNG import/export trades, but fundamental changes in traditional US tanker trades, notably to and from West Africa, have been less well reported. Changing US energy patterns are having a far-reaching impact on the country’s conventional tanker trades, notably in the Suezmax and products tanker sectors.

In July, spot fixtures for Suezmax tankers out of West Africa reached 95, almost double the June figure and a sharp increase on every monthly figure for the last two years. The reason, according to New York broker Poten & Partners, is the narrowing of the spread in price between Brent crude oil and West Texas Intermediate. Refinery closures in the US have reduced the requirement for West African imports, the broker says, whilst the ramping up of US crude oil production to the highest levels in 22 years has further impacted the traditional trade for Suezmaxes between Bonny and Philadelphia.

Increased activity last month soon had an impact on Suezmax rates. “Timecharter equivalents responded accordingly,” comments Poten in a recent report, “to the delight of many shipowners.” Rates for Suezmaxes between West Africa and the US have averaged about $12,000 a day in the year to date, but plunged to just $6,000 a day in June. But increased activity in July saw rates break through the $20,000 threshold.

However, Poten believes the long-term health of the Suezmax trade out of West Africa remains vulnerable. Demand for West African crude depends to a large extent on short-haul Atlantic Basin trades and therefore the spread between Brent crude prices and West Texas Intermediate. The narrowing in spread may have given a short-term boost to the Suezmax business, but the US Energy Information Administration (EIA) expects the spread to return to a more normal $6 a barrel by year end.

There are also supply factors to consider, Poten points out. The current Suezmax fleet of around 440 vessels will grow by another 50 vessels or so as today’s orderbook is commissioned in the months ahead. But each 100,000 bbls of West African crude export to the US or Europe only generates demand for two to three Suezmax vessels a year. Of course, there are other important Suezmax trades, but those depending on US demand are likely to take a continuing hit.

Meanwhile, rising US crude production is having a sharp impact on the country’s product tanker trades. Due to self-imposed regulatory constraints, the US cannot export crude oil, with the exception of small volumes to Canada. Therefore the country has been forced to refine more of its own crude, creating completely new export trades in products. Product tankers are now exporting clean products to markets in South America, Central America and West Africa, traditionally a source of crude oil for import. However, Poten reports that the boost in US product tanker movements comes at a cost to traditional and weak European refining and product tanker trades. “It could prove to have longer-term negative effects on European refiners if current conditions persist,” Poten said recently.

The reason for the increase in domestic crude production is the introduction of new drilling methods in so-called “tight oil” formations. The result, says Poten, is a new dynamic within the US which means that the country is become less reliant on foreign crude oil imports, whilst product exports are on the rise. This is unlikely to be merely a short-term blip, and Poten suggests that US refiners will continue to produce higher export volumes, thereby providing a new source of competition for European refiners already facing a weak economic outlook.

The views of the Publishers do not necessarily correspond to the views of Lambos Maritime Services Ltd.

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