The northern hemisphere winter has a strong pull on crude oil demand, leading to a traditional Q4 freight rate spike. Normally, VLCC loadings in the Middle East start to ramp up in September and reach a peak in December. As the inventory of available VLCCs in the Middle East or due back for loading diminishes, the freight market starts to climb, producing a comfortable, predictable rate spike during Q4. The amplitude, and number of spikes in Q4 can vary on the severity of the weather. Typical Q4 weather events that can push up rates include high winds closing load ports in the Black Sea, the closure of the Straits of Istanbul due to fog, and extreme icing in the Baltic Sea.
What happened to dampen the traditional spike in Q4 2017? The consensus among tanker analysts is that OPEC is to blame. OPEC’s influence on the crude oil market is less than it was, but the cartel still has significant influence over the direction of the crude oil price. OPEC’s self-imposed oil production cuts have remained remarkably firm, especially compared to previous quota cuts. Indeed, some analysts report that OPEC is exceeding its own production cuts by nearly 30%. This action drove up the crude oil price, which led to a drawdown on inventories in Q4 2017, reducing the demand for tanker loadings in the Middle East. This generated a cascade effect in the fourth quarter of VLCCs moving into the Atlantic to poach Suezmax cargoes, and displaced Suezmax tankers taking Aframax cargoes in the eastern Mediterranean.
The good news is that the crude oil inventories drawn down in Q4 2017 need to be restocked, which will give a short-term boost to the tanker market. In the longer term, there is no advantage to OPEC in letting the crude oil price rise too high. Allowing the crude oil price to climb toward past peaks of US$100/bbl plus mainly benefits the US shale producers. In seeking to redress the crude oil price, OPEC may open the taps just enough to see a return of the Q4 rate spike this year.
Your new tanker and markets editor
The eagle-eyed reader will have noticed that the picture alongside the story is that of a different person, or that Edwin Lampert has suddenly aged! Don’t worry, Edwin is still very much part of Riviera Maritime, and he is now head of content. My name is Craig Jallal, and I am the new tanker and markets editor. I will be working closely with Edwin and the team, providing commentary on the markets. My background is mainly shipping analysis, starting as a staff writer (later editor) on Lloyd’s Shipping Economist, before joining Dr Martin Stopford’s team at Clarkson Research Services. I have also worked in ship finance and in the PR sector. I look forward to engaging with you all, as we try to understand how and why our markets behave as they do.