23rd July 2010 - US Demand Drives Crude Imports Higher
This year has seen a major reversal in many of the fundamental drivers to our business. World oil demand is forecast to return to peak 2007 levels of 86.5 million b/d (after falling by 1.8 million b/d); trade volumes are increasing; spot and time charter rates have risen, asset prices are on the increase and more crude tanker neworders have been placed (especially in the Suezmax sector). Here we look more closely at one of the reasons behind the market upturn in the tanker sector, namely US crude imports.
The recession struck the US market extremely hard, with oil demand falling by almost 2 million b/d (minus 10%) between 2007 and 2009. Although we expected product imports to fall sharply with this drop in demand, it was the US domestic refining industry that took the biggest hit. US refining margins collapsed and with this crude throughput levels were cut by a massive 1.3 million b/d between end 2007 and end 2009. Given this, it is no surprise that US crude imports fell dramatically, with the biggest drop taking place between October 2008 to December 2009, when trade fell by 2 million b/d. With much of this decline falling on Middle East imports to the US, it was one of the longest haul and most influential crude trades that lost business.
However, this year fortunes have changed, with recovery from the global economic crisis, a return to growth in US oil demand and better fortunes for US refiners. This has meant refinery throughput in the US has rapidly bounced back to mid 2007 levels and that crude imports are up by a staggering 1.6 million b/d over the past 6 months.
This may seem incongruous at the moment, when VLCC spot earnings are just above $20,000/day, but the signs are there, with US oil demand currently 0.6 million b/d above year earlier levels and indications of further growth next year. Of course this is not back to the heady days of a few years ago and there are some concerns about a ‘double-dip', but it is a rising trend. Some of this gain will be met by crude pipeline exports from Canada in to the US, but by no means all. Perhaps more importantly, the uncertainty about deepwater drilling in the Gulf of Mexico could push seaborne crude import requirements even higher. All this is good news for large crude tanker owners; more trade to the East with growing oil demand and new refining capacity coming on stream and more trade to the West with a bounce-back in US oil demand and a rebound in refinery throughput and crude imports. The next question focuses on the tanker industry response and how many new orders
