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. 

Oil Tanker Daily Rates are the lowest since the data started being kept by Clarkson Data. From the article:

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.