Is the international oil transportation market under the greatest pressure in 15 years?

- Feb 20, 2020-

The fourth quarter is the traditional peak season of shipping, and the market is generally optimistic about the oil transportation market in the fourth quarter. On October 29, the Baltic crude oil price index (BDTI) reached 1101, down 3.64% from the previous day, basically the same as the same period last year, which shows that the international oil transportation market has gradually recovered its rationality. From September to October, the rise and fall of BDTI is like a roller coaster, which attracts market attention. In particular, VLCC rates soared to a high of $300000 / day on October 11. "            

According to the data of maritime service network, BDTI has risen since July 2019. On October 14, the daily report closed at 1958 points, an increase of 188.4% compared with the beginning of July. Since the annual high on October 14, it has been revised back for several consecutive days. As of October 29, it has dropped 43.8%. Such a large rise and fall is extremely rare in the history of BDTI index. VLCC freight rates soared to a high of $300000 / day on October 11, up 50% a day, almost the highest level in the past 15 years.           

 Many factors interweave to cause the change of tanker freight            

On the whole, the rapid change of the international oil transportation market in October is the result of the joint action and mutual promotion of multiple factors.            

First of all, the cyclical factors of the tanker market play a role, and the industry prosperity index rises. In the middle of 2014, the international oil price fell sharply, and the low oil price operation gave birth to the demand for oil storage. At the same time, nearly 10% of the transportation capacity was allocated to the oil storage activity market from 2014 to 2015, which led to the short-term shortage of transportation capacity in the shipping industry, which led to the rise of the transportation price, reaching the level of 100000 USD / day, and there was no significant increase after that. In 2018, the tanker freight rate was close to a 30-year historical low, and the volume of ship demolition reached a new high since 2003. Many institutions predict that the oil transport sector has been on the eve of the boom reversal cycle, and the future at least one year is a deterministic cycle up.            

Secondly, in the second half of this year, geopolitical events occurred frequently, and uncertainties in the international oil market increased, driving tanker freight up. On September 25, the United States imposed sanctions on six Chinese companies, including COSCO Shipping (Dalian) and other shipping companies, for the reason of "suspected violation of the ban on transshipment of Iranian oil". As a result, COSCO Shipping Group cancelled many tanker orders and many Charterers and ship brokers were forced to seek services from other shipping companies. According to data from Braemar ACM, a shipping broker, there are about 358 tankers of all types in the world affected by the US sanctions against Iran and Venezuela. In September, two oil facilities of Saudi Aramco were attacked by drones; in October, an oil tanker of Iran national oil company was attacked in the Red Sea, which exploded and the crude oil loaded on the ship leaked. In the Middle East, there is no doubt that the successive emergencies have added a fire to the international oil market and the international oil transportation market.            

Thirdly, with Iran's and Venezuela's oil exports being sanctioned by the United States and Saudi Arabia's production level before the attack in September, many importers in the world turned to buy American crude oil. Taking Asia as an example, the distance from the United States to Asia is 2-3 times that from the Middle East to Asia. Huachuang securities analysis believes that, regardless of increment, only considering substitution, the U.S. factor will increase the turnover of the industry to 3.6% and 4.4%. In the fourth quarter, with the arrival of winter in the northern hemisphere, the energy demand keeps increasing, which urges oil importers in Asia and Europe to find ships to meet the demand, which greatly increases the demand of VLCC and pushes up the freight.            

Finally, the International Maritime Organization decided to implement a global regulation on sulfur content of marine fuel oil no more than 0.5% from January 1, 2020. Although refineries in various countries have been producing compliant fuel, the demand for low sulfur fuel in the marine industry is very large. International oil companies have rented VLCC as floating storage device, which has affected the available shipping capacity. At the same time, some ships have been docked and installed with waste gas scrubbers, which also aggravates the transport capacity tension.            

Tanker freight up            

The rise of tanker freight is good for tanker transportation enterprises. COSCO energy and merchant ships play an important role in the international tanker transportation market. From September 2 to October 11, China Merchants ship's share price rose 35.88% in the range, and rose and stopped continuously on October 10 and 11. COSCO's shares rose 7.44% on October 10 and rose to a limit on October 11. According to the data, the main business of CMCs is tanker transportation and dry bulk transportation, among which the fleet size of its own VLCC and VLOC (super large ore ship) ranks first in the world. According to the scale of transportation capacity, COSCO is the world's largest tanker owner. As of June 30, 2019, it has owned and controlled 151 tankers with a capacity of 21.88 million tons.            

Analysts of Shenwan Hongyuan Securities said that with the continuous and rapid growth of China's crude oil import, PetroChina has become the main force of demand growth in the tanker market in recent years, especially in the VLCC market. With the support of relevant policies, there is a broad growth space for Chinese shipowners to carry China's offshore oil transportation market.            

At the same time, global tanker freight rose, negative petrochemical enterprises. Cheng Xiaoyong, director of Baocheng futures financial research institute, said that the potential negative impact on petrochemical enterprises, especially oil refining enterprises, cannot be ignored. The sharp rise of crude oil transportation price increases the cost of crude oil to the factory, enterprise management costs and operating costs.           

Li Yansen, a macro-economic researcher at Fangzheng Futures Research Institute in the medium term, believes that the rise of crude oil freight will lead to the rise of crude oil CIF price. At the same time, it will also push up the cost of domestic refineries and chemical enterprises that use crude oil as raw materials, which will have a negative impact on the chemical industry, especially the upstream industry stocks of energy chemical industry, and will have a positive impact on the price transmission of downstream products of energy chemical industry chain.