Production Predicament

As we edge closer to 2024, oil markets have increasingly begun to question what OPEC’s strategy for next year might look like. Under the current arrangement, production is due to rise by 2.375mbd in January if all producers chose to utilize their quotas. Few market participants expect the taps to be turned on come January, but noises are being made within the producer group about next year’s volumes, with the decision to postpone this Sunday’s meeting adding further downwards pressure on oil prices.

The main OPEC producers (OPEC 10) have a total 2024 target of 24,994mbd, against October production of 22,619mbd (according to OPEC sources). However, within this quota, some countries are seeking even higher allowances. Although both Angola and Nigeria have faced challenges over the past few years and have rarely threatened to exceed their quotas, Nigeria is gradually edging production upwards and recently produced above next year’s allowance of 1.380mbd, whilst Angola also has its own ambitions. Indeed, earlier this year it was agreed that its quotas for Nigeria, Angola and Congo might be assessed higher for 2024, subject to review by outside analysts.

In the Middle East, the UAE set out an ambition of boosting oil production to 5mbd by 2025. Under its 2024 quota the country has scope to increase exports to 3.2mbd next year, up from 2.94mbd in October. Whilst 5mbd is unlikely to be achievable in the short term, the country has spare capacity to boost production to around 4mbd and may seek to exploit its resources further. Saudi Arabia, the stalwart of OPEC has continued to lead by example but could also be the biggest source of supply growth next year. Current production sits around 1.5mbd below next year’s quota.

The group may also have to consider how to bring Venezuela back into the fold. It is currently too soon to consider any targets on the Bolivarian Republic’s output, but any increases from the State will need to be considered in a broader context. Additional consideration needs to be given to OPEC+ members, of which Russia is the largest producer. Likewise, Iran, which seems unlikely to get sanctions relief anytime soon, appears to be boosting exports, whilst non-OPEC supply is also expected to expand next year by 1.3mbd.

Much depends on what level of production that demand growth can absorb. OPEC remains bullish for 2024 consumption, which it expects to expand by 2.25mbd. However, in contrast, the IEA expects growth to slow to just 920kbd next year. The challenge for OPEC therefore is how much oil can the group bring back into the market to manage the ambitions of individual members, whilst also keeping prices within an acceptable range? Ultimately the global economy may decide for them.

OPEC Production vs Quotas (mbd)

Crude Oil

Middle East

The VLCC market has had a topsy-turvy week in the AG, as we started off with a balanced firm market as Charterers looked to cover first decade stems after last week’s activities in Dubai. However,  by midweek rates had begun to soften as Charterers were able to secure better than last done off-forward dates and it seemed we were facing an oversupply of available tonnage. There was some relief for Owners towards the end of the week as activity levels began to pick up and we saw a large amount of tonnage fixed away in off-market deals. Owners are now showing more resistance and in today’s market we are calling 270 AG/China at ws 67 and 280 AG/USG at ws 35.

Rates remain under pressure amidst minimal enquiry for Basrah/West. Charterers will look to push rates towards 140,000mt x ws 70 next week. Enquiry to head East has picked up marginally and rates are around 130,000mt x ws 117.5 today for AG/East.

It’s been a rather sluggish and disappointing week for Aframax Owners in the AG region. A combination of inactivity, tonnage replenishment in the region and a crumbling Med market leaves a soft underbelly to rates. A healthy appetite for West runs from Owners remains, but quality options willing East are more limited. Overall, we expect to see rates fall under fresh tests early next week. Rates for AG/East sit at 80 x ws 180-185, with the potential to slip into the 170s… Dem should be max mid-40s now, especially with some dem levels in the Med starting with a 3.

West Africa

It’s been a busy week in WAF on VLCC, especially on Eastern runs and while there was some softening following on from events in AG market, Owners have been able for the most part to keep levels in the high ws 60s. Charterers were able to keep a lid on rates as Suezmax remained stable, so there was less pressure and activity levels on the other side of the Atlantic were slow mainly due to the Thanksgiving holidays. In today’s market, we are expecting a WAF/China to fix at ws 69 level.

Suezmax markets in West Africa have started to steady after their recent push downwards. With confidence among Owners beginning to build, TD20 today we estimate at 130,000mt x ws 95, and to head East premiums are around ws 10 points. Yet, cargoes that don’t need Nigeria will have a lot more competition.

Mediterranean

The market in the Med has also stabilized and Owners ideas have started to push up. TD6 today we think at 135,000mt x ws 140 is likely achievable. Cargoes heading East from Libya today will be approximately $5.0m but enquiry remains limited.

A rather disappointing week for Med Aframax Owners, as rates have steadily declined throughout as ships popped out of the woodwork ready to erode last done. In the main, this happened for longer Cross-Med runs and ws 160 was achieved from Ceyhan, as Charterers started to reach further forward to capitalize on the lower rates. Even less was achieved from Libya. CPC rates have also come under pressure but, with increasing delays in the Turkish straits, Owners are starting to dig their heels in for these runs. Ws 190s appear to be on the cards but to be tested. There are still ships to fix as we move into next week, so a rebound looks like a distant hope for Owners as things stand.

US Gulf/Latin America

As expected, VLCC rates softened with the holidays having a negative effect on demand and Charterers had some success in lowering rates, especially off more forward dates. Owners will be hopeful of a rebound next week and we are seeing a notable increase in Brazil exports, which should help the sentiment.  We expect a USG / China run will fix in the region of just  $10.05m on today’s market, while Brazil/China is paying around the 68 level.

North Sea

A bit of a week to forget in the North, with little tickling the market’s attention. Rates remain tepid, with action in the low ws 160s. The list is still plentiful, with nothing signaling a direction change any time soon.

Crude Tanker Spot Rates (WS)

Clean Products

East

LR2s started the week with big ambitions and a list of early cargoes. The rates took a step and Owners were pushing hard but with LR1s lacking the same interest it couldn’t be sustained. TC1 was easily pushed to ws 130 easily and now rests at ws 135, ws 140 was on subs mid-week but that stem was resized down to the LR1s as its better value. A 90,000mt ULSD AG/UKC run was fixed at $3.6 million (including EU ETS charges) and again ambitions for Owners was to breach $4.0 million but this did not happened with rates now steady around the $3.7 million level. We end the week with nothing outstanding on the LR2s but with Satorp back online the expectation is of more volume next week from the big players like ATC, which would steady the rates.

The LR1s have had a quiet week overall with just a few more stems quoting as the LR2 stems resize down. But TC5 saw the hit first with ws 125 paid – some 10 points below the LR2s ! West rates have stayed pretty flat as ever with a shorter list of candidates. A 60,000mt Jet AG /UKC run was fixed at $2.95 million but there is maybe a touch that could be taken off that. Going into the new week both sizes need the volume to have any of the December uplift we have expected.

The sluggish feel to the MRs East of Suez has continued this week. Despite more questions coming out for Westbound largely off forward dates the rest of the market has remained on the whole untested and flat. TC17 has traded mostly sideways but we close the week with one unit on subs for SAF only at ws 190. Given the quiet end to the week the expectation is that EAFR will be bought in line with this come Monday as those ballasting back look to take coverage.

In North Asia, the early December demand has slowed down. Rates went up slightly from last done but failed to stay there. The arb window into South America is marginally open but now the freight element has become the obstacle as nobody wants to miss the December and January market in the Far East. The tonnage clearance in Singapore continues and vessels keep ballasting to AG or North Asia. The tonnage oversupply is seemingly improving. TC7 traded up 5 points to ws 162.5 while short haul rate stays depressed.

Mediterranean

It’s been a week of two halves for the Handies in the Mediterranean, where after a busy start, acitivty has slowed a touch. With a ppt replacement needed Monday morning and the list already tight ex EMed, we saw rates firm up to 30 x ws 350 X-Med, with Owners bullish. However, WMed activity remained quiet and as a result we saw a split in rates appear, with WMed trading at almost ws 50 points less due to more available tonnage ballasting from the UKC. Fast-forward to Friday and we see 30 x ws 270 achieved ex WMed, with EMed expected to negatively correct in due course. Quiet finish here.

Finally to the Med MR market, where overall it has been an active week for this sector. We began the week, with rates trading around the 37 x ws 200-205 levels Med/TA. Due to good enquiry all week, we have seen these levels hold throughout, despite TC2 trading at around ws 20 points less. WAF premium has been at a higher, ws 15-20 point premium, with Owners much preferring to head TA to the booming States market. Steady into the weekend.

UK Continent 

If we just look at the rates fixed this week for the UKC MRs, then we can say it feels like Charterers have taken the upper hand. Yet, once we delve into the tonnage list with what is left for next week, I’m sure Owners are fairly pleased with their position. The limited TC2 enquiry we have seen has certainly been the preferred route, with Owners wanting to stick around the Atlantic basin, especially with how well the Thanksgiving rush has boosted rates. WAF on the other hand has been trickier to cover, with Owners wanting an increased premium. With this run being the more active, the few willing ships have been quickly snapped up. As always, cargo flow is crucial next week and would suggest the Charterers out there first will benefit from a few more options available.

It has been a fairly steady week for Handies plying their trade in the North as X-UKC closes at 30 x ws 177.5. The Med market has been the talk of the town, with a few ships opening up in the North either fixed ex WMED or have ballasted down to capitalize on the higher returns. The supply of ships in the North has tightened now but with the weekend break on the horizon, expect a few more alternatives available to charterers come Monday. Steady here.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

In the Med, fresh enquiry proved hard to come by this week. Tonnage availability remained in good supply across the region with Charterers firmly in the driving seat. In terms of levels heading into next week, we will likely see Charterers on the front foot with last done levels quickly chipped away at.

In the North, fresh opportunity was limited but Owners managed to fight off any real negative impact on levels. Still, a few units remain in play but it won’t take much enquiry to see the market swing in Owners favor again. All in all, a balanced end to the week.

MR

Following a rather bleak period of no full stem activity, one Owner finally managed to dust the cobwebs off and test the market at ws 227.5. This has helped eliminate the ambiguity around market levels but expect Owners no less than last done going forwards whilst naturally placed MR units are sparce. In the Med, 45kt cargoes fed in slowly over the course of the week, albeit largely under the radar. This has created a disparity in levels between certain Owners and as a result, negotiations will be very much held on a case by case basis. 

Panamax

Little to report in this sector as Owners have struggled to find employment for their vessels both locally and TA. Thanksgiving holidays put the brakes on the back end of this week but with Aframax markets also falling, Owners will continue to face an uphill battle entering next week.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

Clean and Dirty Tanker Spot Market Developments – Spot WS and $/day TCE (a)

wk on wk changeNov 23rdNov 16thLast Month*FFA Q4
TD3C VLCC AG-China WS-866745663
TD3C VLCC AG-China TCE $/day-11,75045,25057,00032,50041,250
TD20 Suezmax WAF-UKC WS+110099145110
TD20 Suezmax WAF-UKC TCE $/day+50039,50039,00069,75047,500
TD25 Aframax USG-UKC WS-27180208265197
TD25 Aframax USG-UKC TCE $/day-11,00047,25058,25080,50054,500
TC1 LR2 AG-Japan WS+10134124173
TC1 LR2 AG-Japan TCE $/day+3,75026,50022,75043,250
TC18 MR USG-Brazil WS+9336301199241
TC18 MR USG-Brazil TCE $/day+7,25055,50048,25024,25035,250
TC5 LR1 AG-Japan WS-6126133170152
TC5 LR1 AG-Japan TCE $/day-2,00014,75016,75028,25022,500
TC7 MR Singapore-EC Aus WS+5163158229205
TC7 MR Singapore-EC Aus TCE $/day+75012,25011,50024,00021,000

(a) based on round voyage economics at ‘market’ speed, non eco, non scrubber basis

Bunker Price s ($/tonne)

wk on wk changeNov 23rdNov 16thLast Month*
Rotterdam VLSFO  -6570576590
Fujairah VLSFO  -7651658646
Singapore VLSFO  +5681676665
Rotterdam LSMGO  +20796776856

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