Shipping Giant Says Shale Boom Ends OPEC’s Power to CrushBy , , and
OPEC’s ability to damage tanker demand ‘completely disrupted’
Biggest tankers hauling shale oil thousands of miles to China
For decades, the world’s largest oil shippers lived in fear of OPEC turning off the taps and causing demand for their vessels to plunge as cargoes dwindled. That’s not how it’s played out this time, according to one of Europe’s biggest supertanker operators.
The rise of U.S. shale exports, particularly on long-distance routes to China, has propped up demand for tankers that would otherwise have been severely dented by this year’s output cuts led by OPEC, Paddy Rodgers, the chief executive officer of Euronav NV, said in an interview on Bloomberg TV on Thursday. His company’s fleet can haul more oil than is normally stored at Cushing, Oklahoma, the U.S. trading hub.
While freight rates are suffering from an oversupply of ships and a seasonal dip in refinery buying, they’re not being hurt by OPEC, he said. Distances covered by tankers are critical for owners because that determines the rate charged for vessels along with cargo sizes, a measure known as ton-mile demand.
“For most of my career, this has been the big swing factor on our earnings but this was completely disrupted by the arrival of American shale,” Rodgers said of OPEC’s historic influence on tanker demand and shale’s response. “From a standing start of zero barrels a day, it’s gone to 750,000 barrels a day and over half of that is being shipped on big tankers, which are going to China,” he said, referring to U.S. crude exports.
OPEC and allied nations agreed late last year to lower their collective output by 1.8 million barrels a day for six months from January, later extending cuts into 2018. The deal failed to drive up oil prices much above $50 a barrel because of increasing U.S. shale production. The nation’s exports averaged about 760,000 barrels a day this year and are heading for a record year, Energy Information Administration data show.
Even so, freight rates are very low because of the vessel surplus and the seasonal drop in shipments, Rodgers said. Shipments to Asia from the Middle East earned $9,759 a day on Aug. 9, according to data compiled by Bloomberg. That’s the lowest for the time of year since 2013. Even so, the weakness is not because of any fundamental drop in the flow of cargoes, Rodgers said, adding that as much as 6 percent of the fleet could be candidates for scrapping by 2020.
The fleet listed on Euronav’s website can haul more than 80 million barrels of crude. The largest volume stored at Cushing over the past decade was 69.4 million barrels in April this year, EIA data show.
Tankers bound for China are typically sailing around South Africa, according to Rodgers. That’s a voyage of almost 18,000 miles, more than double the distance from the Middle East to Asia, the industry’s benchmark route.
“Demand for oil and transportation is good and strong,” he said. “It’s just the fact we’ve just got a few too many ships and the seasonality of the summer when people consume less.”
— With assistance by Serene Cheong, and Julian Lee