The next energy market crisis: shortage of oil tankers

In the new era of energy shortages, one aspect of the situation tends to be overlooked: the transport of energy.

Demand for oil tankers has been on the rise since the European Union sanctioned Russia in the spring and this trend will only intensify in the coming months with the entry into force of the EU embargo on Russian oil and fuels.

Bloomberg reported This week, shipping companies were rushing to get their hands on as many ice-class tankers as they could before the embargo, which goes into effect in early December for crude oil and two months later for fuels.

The ships will be needed to continue moving Russian oil and fuels in non-European directions, the report notes, as the EU would no longer be able to buy them, although European buyers are currently stocking up on Russian oil and fuels in anticipation of the embargo.

The war in Ukraine and the EU’s response to it have already significantly animated the global oil tanker market and, with it, the costs of transporting hydrocarbons.

Since the February 24 invasion, the demand for oil tankers has increased and is likely to remain solid in the observable future, not least because supply is quite limited, Tor Svelland of Svelland Capital said CNBC in August.

Few tankers have been built in recent years, and as this isn’t something the industry can reverse overnight, supply is likely to remain limited, pushing the cost of oil and fuel transportation higher.

Indeed, in early August, Bloomberg again reported that the global product tanker market was seeing the strongest demand in more than two decades. Citing data from Clarkson Research Services, the report says that an oil tanker’s average profit in the two weeks to August 8 jumped to $ 400,000, the highest since 1997.

At this point, this figure is likely even higher and will continue to rise as fuel demand outstrips supply in the coming months. The fuel market is already tense, but with the entry into force of the EU fuel embargo against Russia, it will only become tighter, further intensifying competition for a limited fleet of tankers.

“The EU ban on Russian petroleum products from February 2023 will stimulate a recalibration of the oil trading ecosystem,” Danish shipping company Torm said in a statement. quoted by Bloomberg. “Some of this commercial recalibration has already begun.”

The recalibration will involve not only more tankers to transport Russian fuel and crude oil to non-European destinations, but also more tankers to supply Europe with oil and fuel from non-Russian locations, including, most likely, places like China and India that they process Russian crude oil into fuels then export, among others, to Europe.

In addition to this anticipated narrowness of the tanker market, which will have a palpable effect on fuel prices, the global fuel market is also strained and is likely to remain so in the coming years.

According to a Reuters report citing S&P research, the reason is a record collapse in global refining capacity, of 3.8 million barrels per day between March 2020 and July 2022, according to a Reuters report citing S&P research.

As refining capacity shrank, fuel demand increased by 5.6 million barrels per day, creating a sizeable gap with refining capacity-based supply. The new refining capacity of around 2 million barrels per day is expected to go live by the end of next year unless delays occur, which is quite likely, according to S&P research.

Further capacity increases are far less likely as refineries suspect that the drive for the energy transition will turn potential new refineries into frozen assets in short order.

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In this situation, the future does not look good for fuel economy or wide availability. With the entry into force of the EU oil and fuel embargo, Russia will target new customers in Asia, Africa and, according to Bloomberg, Latin America. The EU itself will have to source fuel from places like the Middle East, the US and, as noted, India and China.

Due to the tight supply situation, which would certainly add a premium to fuel prices, it cannot be excluded that countries importing fuel from Russia, such as the two Asian giants and Saudi Arabia, may choose to do what China does with Russian LNG: resell it in Europe at extra cost.

Meanwhile, the United States is experiencing its limits with fuel stocks, particularly stocks of middle distillates, diesel and jet fuel. This means for Europe that the help it can expect from the United States in the form of increased fuel exports would be limited – it simply is there insufficient diesel fuel export. This could add another premium to fuel prices this winter.

Oil tankers and the fuels between them are about to make fuel more expensive this winter as the world tries to fight inflation. Tankers and fuel will not help that fight.

By Irina Slav for Oilparmi

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