CRUDE OIL - A SHRINKING RESOURCE

CRUDE OIL, ENERGY, SHIPPING

Friday, July 06, 2018

Y2K20


So finally it seems IMO will go ahead with its Sulphur Cap Compliance regulation whereby, ship's would have to be fed on LSFO with sulphur contents less than 0.5% from existing HSFO having 3.5%. In layman's lingo hyenas of energy jungle would be asked to consume fresh flesh instead of rotting carcass.

As per EIA data, half of the 8mbbld high sulphur fuel oil produced by the worldwide downstream refineries is consumed by the ships. Come 2020, 70% of the demand for this product will fall which would bring a great imbalance in demand, supply and prices of this product. The impact would be severe and felt by the entire sphere of producers and consumers.

Impact on Upstream: Demand for Sweeter crude will be higher and thus the price differential between sweet and sour crude will widen. MEG producers stand to lose more than the western producer of sweeter crude.

Impact on Downstream: Refineries without Coker/ hydrocracker unit producing higher amount of HSFO will see shrinking profits and building inventories of the lower grade fuel. US refiners are less vulnerable than the rest.

Impact on Bunker prices: There will be huge differential between the prices of  HSFO and LSFO/MGO.

Impact on Ship Owners/ Shipping market: The operating cost will increase tremendously due to high priced bunkers. Thereby hitting the profitability. Small owners will be at potential risk of not bearing the operating cost so they will prefer timechartering their units instead of performing Voyage charters. Timecharter rates will drop. Freight rates will be much higher. 

Impact on Charterers: Obviously the cost of fuel will be passed on to the charterers of ships or receivers of the goods.

Impact on world economy: This premium on bunkers will in turn kick up the commodity prices in general and a wide spread inflation. Higher rate of inflation will inspire higher interest rates which in turn will subdue demand, stock markets and world economy.

Apart from shifting to higher grades of bunkers there are two more alternatives given to the ship-owners/operators for compliance of the rule. First is to install scrubber system onboard while using baser grade and the second is to use alternative marine fuels like LNG or methanol etc.

Whereas, the alternative fuels fail on accessibility and availability issues, I find installing scrubbers onboard as the best solution for the tramp ships. It is logical to upgrade the digestive system rather than limiting your dietary choices. However, it has not found favours with majority of owners as it is expensive and results in layoff days in a repair yard.

Disaster for some means opportunity for some. Sweet crude producers, full conversion refineries with high complexity rating, advanced engineering and technology companies making scrubbers etc are all set to gain out of misery of ship operators. Besides these, the defaulters and cheaters will make a killing as always.

However, severity of the impact is subject to the sincerity or strictness with which the regulation is complied with. In present scenario, the authority to enforce IMO 2020 rests solely with the flag state. Flag states neither do have adequate infrastructure, resources or will to enforce the law. Most of the ship owners, specially the small, have chosen to remain inertial banking on the fact. But winds of change are already blowing. All players in the game will have to evolve or else get exhausted.

Need to protect our environment for a better future at any cost.  

Wednesday, March 29, 2017

Coal Ahoy!

Pres. Trump has trumped another of Obama's high cards. After Obama Care Mr Trump has rolled back Obama climate action plan. The core idea is to reinstate cheap coal as the main source of energy. Save and create jobs for the coal miners. Obviously, coal lobby was at work during elections. Mr. Trump is a businessman and he, like anyone of his clan, believes money could buy everything, even immortality.

Unfortunately, Mr. Trump's act is spontaneous, prejudiced and political.

Until recently, USA has been leading the fight against Global warming, which is more of a proven fact than a myth. A step back by USA may unleash China & India, the two leading aggressors and violators. However, the renewable energy technology has now gathered enough momentum and has become potential competitor of the fossil fuels by virtue of low prices. Slacking of regulations on the production and use of dirty sources of energy would put downward pressure on their prices thus making them less profitable and the mine workers less prosperous.

Moreover, it wont be a smooth drive to furnace for Mr. Trump and the lobbyists. Environmentalists will be major road block and the diggers will have to go through lengthy law suits before they could get permission to smoke the world.

Nevertheless, in short run, its a good news for dry bulk shipping markets, a sector which turned lifeless after Obama climate action plan came in force. Now we will see more coal on water and the dry bulkers cranking to life once again.

On the macro screen, the movie would continue as scripted after a minor glitch because only the technology holds the trump card to future. 

Wednesday, February 03, 2016

An Oil Autumn

Oil has been shedding its price for quite a while now. Oil producers are having a tough time while the consumers are making merry.

However, falling prices should be a great cause of concern for the consumer nations. It was not the British or the Americans who forced defeat on Germany during WW II. In fact, it was the Russian retreat which trapped and left Nazi forces to languish in harsh Russian winter and ultimately to defeat.

A gross consumer nation like India has unlimited potential for growth of oil demand and we are already witnessing its demand for oil products multiplying dangerously over recent past. The current retreat in oil prices is certainly poised to make the new government, which is hard pressed to fuel development and the economy of the country, complacent to the over-usage of petro-products and its perils. It is no brainer, sun will shine over the oil industry once again and then the consumers will be caught with their pants down to the oil blitzkrieg.

As the prudence calls, each and every penny saved out of blood of oil industry, must be fed NOT into building roads or cars or other oil resuscitating industries BUT into alternate renewable energy sector. The government must come up with a road map for the entire national development basis conservation and recycling of the resources. Blindly accepting and following the western road maps will be a one way ticket to doom for the entire developing masses.

Monday, January 25, 2016

Year of Monkey Business

New year 2016 has dawned but the world economy wears a fatigued looks and businesses are yawning...

21st Century started with boom and bust of information technology. Boom or bust, the information technology was to become the order of the day. The world was swept over by IT at the speed of light. It transformed human behaviour and life style.  In bid to survive the metamorphosis brought about by the information technology, it was imperative for each and every element and structure of the human society to undergo a rigorous evolution process. Obviously, there are some tough nuts in every walk of life. Every change is resisted by inertia or status quo.  The purpose of this inertia is to hold the continuum thru the entire animation. But this change has to be rather quick and abrupt. Hence a majority failed to accept and evolve. And this majority has now turned rebellious (ISIS). We see the war clouds hanging over the centre stage. Nature too has been increasingly hostile due to prolonging of the previous act (industrialisation).

We are going through a difficult phase of change-over before we settle down to the new dawn.  

IT era means, 80% of the world population languishing in poverty, ignorance and destitute to fall in to the global main stream. To absorb this huge influx into the existing mainstream would mean an incredible stress on natural resources. Hence, the only logical solution would be :
1. a substantial natural resource friendly change in human lifestyle and processes 
2. a substantial shrinking of human population.

The speed of the transition would have to be faster and thus it may be a painful interlude before the paradise is regained. 

Friday, August 07, 2015

Trumping Oil

I am hot! I am so hot!! Check me out, I am hot!

You bet, you indeed are the hottest. For billions of years the sun has been burning bright and sustaining life on earth. But machines were less fortunate until late, as they could not enjoy a sun-bath.  In stead, they devoured on organic agents of sun viz wood, coal or hydro-carbons and farted smoky CO2. In bid to humanize machines, man has now electrified them and for icing over the cake, this electricity is being generated using solar energy.

The day is not far when sun will totally eclipse the conventional sources of energy. Seeking solace in this fact and sensing the sinister rise of Russia in Europe (and Republicans in USA), the USA government lifted the economic sanctions on Iran bringing the prices of oil tumbling down. Republicans cried foul, as they have deep rooted interest in Oil and Oil fields. President Obama has made it clear in his speech that he considered Russia as a bigger threat to USA than Iran (...and Republicans to the Democrats!!). To contain Russia, getting hard to handle Saudis and rising Republicans, Pres. Obama has played his trump card by lifting sanctions over Iran and thus flooding the oil market with Persian barrels.

There will be little respite for oil prices till next presidential elections in US in Nov, 2016, when the Republican will finally be able to play their Trump card.

Monday, July 06, 2015

Greco-Persian Effect

Hovering at 60 for sometime, oil is diving to 50. Greece for all the wrong and Iran for all the right reasons are putting downward pressure on the oil prices. All in all not good for the tanker market in short-medium term.

Tuesday, March 24, 2015

Oil Story - the cliff-hanger moment

1. Strong dollar
2. Ukraine truce
3. Soft and compromising Iran 
 ...are the three looming situations which may pull oil further down to the lowest levels in a decade. 

1. Fed
2. Russian & Ukrainian oligarchs
3. Israel
 ...are the three actors who's play will determine the fate of oil in short to medium term.

PS. Oil uses Yemen as a surprise prop.

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