Friday, February 21, 2014

Oil Tanker Daily Rates Tell the Story

After noodling the "where is the Oil" (from my previous post) if the U.S. is not importing it I figured that the tanker market would point me in the right direction. After reading this, I think we have our answer:

Something BIG has happened in Export Land. Really, really BIG. Don't bother looking through the EIA or IEA data. Their data simply cannot be correct if the shipping data reported here is accurate. I have much more faith in market driven daily rates, ship scrapping reports, and ship reported imports into the U.S., China, and the E.U. than the unaudited supply reports issued by the EIA and IEA. 

Daily earnings for the vessels, which haul 2 million barrels of crude, averaged $7,296 since the start of 2013, according to London-based Clarkson Plc, the biggest shipbroker. That’s the lowest level in Clarkson data that begin in 1997.

$7,296 won't even cover the insurance bill.

Rates plunged as much as 97 percent from their December 2007 peak of $229,484 a day as the surge spurred the most orders for new ships since the 1970s, just before the global recession began. That generated the biggest capacity surplus since the mid-1980s and drove Overseas Shipholding Group Inc. (OSGIQ) and General Maritime Corp. to seek bankruptcy protection. Freight swaps traded by brokers show rates won’t exceed Frontline’s break-even cost of $25,000 before at least 2015.

"Just before the Global Recession began"??!! Or just before Peak Oil/Peak Oil Exports occurred?

More from the article:

“It is on the ships’ supply side there is an imbalance,” Singapore-based Jensen wrote in an e-mail Oct. 2. “The only way to clear that is to remove tonnage -- scrapping is the way forward.” 
U.S. imports, representing about 14 percent of oil carried at sea, averaged 25 percent less this year than the peak in 2005, Energy Department data show. The nation’s crude outputis at the highest level since 1992 because of increased extraction of reserves found in shale-rock formations. 
The capacity glut is being compounded by contracting U.S. and European oil imports and the slowest expansion in Chinese purchases since at least 2005. The three account for about 52 percent of demand for seaborne crude, according to Clarkson.

"Scrapping is the way forward"??!!  From order to delivery a tanker is a 2 to 3 year project. Clearly the industry is aware of Peak Oil/Peak Oil Exports.

More from the article:

China’s imports this year are 3 percent higher than in 2012, poised for the smallest increase in at least eight years, customs data show. The nation’s economy will expand 7.4 percent in 2014, the weakest growth in two decades, according to the average of 57 economist estimates compiled by Bloomberg. 
The 28-nation European Union, representing 24 percent of demand, will import 2 percent less oil this year, the equivalent of about 18 fewer supertanker cargoes, Clarkson data show.

That answers my question from my previous post. The U.S. importing much less Oil in 2013. Nearly 2 million bpd from January compared to December... and China's net imports are only +3% while the E.U is a negative 2%? With Brent averaging over $100 for the year? I have a great deal of faith in these data points because I know that Bloomberg (the company, not the mayor) protects its trader franchise at all costs and is freakish about fact checking. You are free to doubt them.

Europe imports only down 2% yoy??!! Anything is possible, especially given how bad the 2012 yoy decline was... but I am skeptical. 

I am calling it here. Oil Imports into China have topped or will top in 2014. Upheaval to follow, most likely over food prices. The U.S., Japan, and Europe topped in 2005. Argentina is now an importer, and is the next Arab Spring/Ukraine. 

The exporters have the price incentive to produce all out, and it is my bet that they are doing just that - and Oil imports into the U.S., Japan, and Europe will only continue to decrease from here. It can't get much worse for the U.S., another 2.3 million bpd of imports and its all over - only Canada and Mexico will be left. And Mexico's 350k net bpd is over in 5 years. Maybe less.

Fracking Schmacking. The wheels are about to come off of a number of wagons. When China stops growing look for Copper and Steal to get crushed. My sense is Coal, too, but I am less confident about that. That means Chile (copper) follows Argentina into Ukraineville, and Australia is toast. Mexico becomes a failed state for real. Looking at the rate of decline for Oil imports I think this all happens relatively soon. Maybe tomorrow. Maybe next year. Not 5 years. Lots of opportunities in all of this.

While the U.S. (and Russia) is in the best position of all the major players (some might argue Russia but they would be wrong, me thinks), the rate of change here in the U.S. will, in my opinion, be a "and the folks was freakin'!" moment. The U.S. has big Oil production, Natural Gas, and Coal resources. We will get by, for now, but the financial system/markets as we now know it will not survive this. Simple as that. Inflation or Deflation? Could go either way. Tell me what the Fed's response is and I will give you a firm answer.

The key is to enjoy the ride. This should be exciting.


confederate miner said...

I dont think it's up to the fed. Won't china and the other countries spend those bonds they have accumulated for the oil they need. I dont think we (america) are in a position to influence the outcome of this.

confederate miner said...

One sector we will have strength in is refineries. We will exporting larger and larger amounts of refined petroleum products. Isn't this what seems to be happening?

Greg T. Jeffers said...

I think that it is up to the Fed, the Euro Central Bank, and the Bank of Japan FAR more so than China.

I need to noodle the financial stuff some more. The Oil question has already been settled as far as I am concerned.

Of course, I reserve the right to change my mind... but the data, to me, is overwhelming.

confederate miner said...

How about this deflation in anything intangible that supposedly represents value and inflation in tangible things. Haha things being a technical term. Hope I am contributing positively.

confederate miner said...

Interested in the opportunities you are entertaining. How are you gonna play it?

confederate miner said...

Greg are you familiar with a guy called srsrocco? He ties in peak oil with the precious metals. You should check out his web site. Got some good articles on both energy and the metals.

Stephen B. said...

Thanks for this. Last night when I went looking for data myself, I couldn't really find anything of quality on recent exportland output. I have been following Stuart Staniford's numbers and have been kind of puzzled as his world numbers for total liquids continued to climb ever higher, albeit slowly because, as you say, a lot of oil isn't crossing the ponds anymore. Peak oil has hit the US and EU, now it's hit crude hauling as well. As you also say, after China peaks consumption, it's a done deal.

'Sorry I wasn't more helpful.

I agree that the US is in a position of relative strength, but I'm not sure that is all that comforting. 2008 really almost sunk everything, but maybe it was the abruptness of the direction change that was so hard to take. That is, maybe the continued slow descent we are currently in - cushioned *somewhat* by fracking and QE has already set us up somewhat for the coming downward acceleration.

Opportunities? I'm so sick of financial markets....I certainly will leave any shorting, especially commodities, to you professionals, though so many parts of the market seem overbought to me here, especially considering where energy realities seem to be heading us.

Stephen B.

PioneerPreppy said...

Interesting and insightful of you to tap the shipping numbers. It also corresponds to some recent articles, including one on zerohedge today about China having huge stockpiles of scrap metal and nothing to do with it. The scrap medal prices have been falling fast the last year at least as well.

As far as America being in a good position though I have to disagree overall anyway. Certainly we have the untapped resources laying around but the current political climate is going to have to change for us to use em and that's going to require more than just tough times because those who are keeping us from using those resources are not going to share the pain of a decline either. IF they can help it. Another words they are going to have to be dealt with before anything else can change.

Greg T. Jeffers said...


"Best position" is a relative term.

We are in a much better position than Spain, Italy, or Greece... but that ain't saying much, is it?

Greg T. Jeffers said...

Stephen B:

The producer's reports are NOT audited. They re reported and accepted by the IEA and the EIA on the honor system.

Inventories reports are not much better. Absolutely NO ONE is going around every week to "stick the tanks" (my family used to be in the fuel oil and gas station supply business... when the CPA auditors come in, they literally accompany staff around to the various storage tanks. For the old style in the ground gas station tanks we would use long measuring sticks and dip them into the fuel. Every tank size had a table for how many gallons were on hand based on the height of the fuel in the tank in inches. Well, that ain't happening for the EIA and IEA inventory reports. I don't know what their exact methodology is, I don't think it is highly accurate.)

tweell said...

The US is better because we have food. As long as we have enough petrol to grow food and distribute it, we can maintain a minimum standard, unlike many other countries. Our oil should be enough for that.

Stephen B. said...

The thing is tweell, we'll probably need laws to prohibit the exportation of that oil. Already we are seeing a fair amount of the increased US and Canadian oil production being exported. Some is exported as plain crude while other oil is exported as refined products.

Indeed, the main reason for industry wanting the controversial Keystone pipeline is to move Bakken and Canadian crude to the Gulf Coast for export or refining and export. Oil flows to the highest bidder and there's no guarantee that Chinese or Indian motorists won't outbid US farmers and distributors. Crazy as it sounds, it isn't too hard for Indian or other Developing World oil users to outbid US consumers because the Developing World consumer gets much more marginal utility from their oil purchases. That is, they might get a lot more benefit from buying 4 instead of 3 gallons of gasoline a week compared to the US soccer mom buying her 20th gallon instead of just 19, and there's a whole lot of Developing World oil consumers just getting their first taste of oil consumption. Willy Wheat Farmer in Kansas might have a tough go competing against DV oil consumers.

Stephen B. said...

But by no means am I sure we *should* prohibit such exportation.

confederate miner said...

I am fairly certain that we are actually a net importer of food. I might be wrong on that. We do produce a lot of the worlds grain and such. But not quite as much as people think

confederate miner said...

Modern agriculture is just as reliant on resources and parts/supplies as anything else these days I would think. We are still going to need to trade with the world.

confederate miner said...

I am sure if we would let freedom work we could become fairly self sufficient after going through some pain. But I dont see it happening politically in this culture we have now. I hope I am wrong.

confederate miner said...

I tend to agree with Stephen B. On his points.

confederate miner said...

Crude oils are all different. I believe our refineries are set up for heavier crudes now.that would be one reason we should allow exports.

Anonymous said...

I dunno about energy exports being a good thing. The DOE has licensed six natural gas export facilities so far this year and 20 more are are pending. But not to worry they have "streamlined" the application process. Prolly be able to piss away our hundred year bonanza by the end of the decade.

Currently I am opposing energy exports, offshore drilling, drilling in ANWAR, etc. The position will change when public perception more closely aligns with reality. For the time being any thing produced would just be squandered propping up doomed systems.