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Tanker market dislocation and volatility down to shale

Thu 07 Sep 2017 by Edwin Lampert

Tanker market dislocation and volatility down to shale

Tanker Shipping & Trade editor Edwin Lampert on how and why Hurricane Harvey has impacted the tanker markets so powerfully

Hurricane Harvey is the most powerful storm to hit the US in more than a decade. And its impact on certain segments in the crude and product tanker market has been equally significant.

To give a sense of the disruption consider that at the beginning of the month, the US Department of Energy reported that 22 oil tankers, said to be carrying about 15.3 million barrels of imported crude oil, were stranded off the Texas coast unable to offload their cargoes due to port closures.

So which tanker sectors have been worst effected? And which ones have gained?

According to Allied Shipbroking the biggest gains have been seen in the oil products markets, with the significant cuts in output bringing in a higher demand for commodities such as gasoline (with gasoline futures reaching their highest level in more than two years) as the drop in supply has left many to scramble for new sources.

By contrast in the crude oil trade, the closure of refineries in the US have also caused a drop in demand for shipments of crude oil.

An abiding question is why has Hurricane Harvey wrought so much disruption to the tanker market versus previous storms.

The answer can be summed up in one word: shale.

In its most recent briefing note, industry analysts Poten & Partners highlight that oil and gas infrastructure in the US has expanded dramatically over the last 10 years because of the shale oil boom, the rapid growth in refined product exports and (more recently) crude oil exports.

Today, The US is the largest product exporter in the world and typically ships some 6 million barrels of petroleum products and up to 1 million barrels of crude oil daily. Ten years ago, these volumes were approximately 1 million b/d of products and no crude. Most of this activity takes place in the Gulf coast area.

The net result, concludes Poten & Partners will be that the tanker market will experience continued dislocation and increased volatility for the next few weeks.