TANKERS: Texas freeze boosts USGC Aframax freight rates to nine-month highs

 

 

 

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TANKERS: Texas freeze boosts USGC Aframax freight rates to nine-month highs

 
OIL | CRUDE OIL | REFINED PRODUCTS | SHIPPING | TANKERS

Clean tankers face extended weakness amid refinery outages, diesel hike

 
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37th Asia Pacific Petroleum (APPEC 2021)

 
PETROCHEMICALS

FACTBOX: Petrochemical restart efforts continue post-freeze

 
OIL

Insight from Moscow: Russia's strong economic position among OPEC+ members underpins its negotiating power

TANKERS: Texas freeze boosts USGC Aframax freight rates to nine-month highs

Author  Nicole Baquerizo     Catherine Wood 

Aframax trans-Atlantic freight spiked over 38% from Feb. 17

Close to 50 Aframaxes waiting for USGC discharge

Aframax business trickles into Suezmax segment

New York — The extreme cold temperatures that hit Texas the week started Feb. 14 caused port closures that locked up tonnage and provided a silver lining for shipowners, already struggling with rates beneath the w100 psychological mark since May 2020 due to low demand for shipping crude following production cuts.

Freight for the benchmark 70,000 mt USGC-UKC route shot up over 38% on the week, to be assessed at $21.25/mt, or w125 on Feb. 25, up from w90 on Feb. 17.

Local freight likewise saw exacerbated rates, with freight for the 70,000 mt East Coast Mexico-USGC route almost doubling within a two-week period, to be assessed at w155, or $7.24/mt on Feb. 25, up w60 since Feb. 17, and up w75 or almost double the value since Feb. 11. The trans-Atlantic and local Aframax markets have not seen such high rates since May 2020.

The unfavorable weather seen across Texas caused up to a total of 300 hours of two-way port closures across main USGC ports and maritime waterways, preventing laden Aframaxes from discharging and returning to the available ship pool, and keeping chartered Aframaxes from loading and completing scheduled voyages.

The Houston/Galveston port reported on Feb. 18 over 80 ships anchored offshore and waiting to berth, and a source said on Feb. 24 that close to 50 laden Aframaxes were sitting off USGC ports waiting for their turn to discharge.

Charterer inquiry over key Americas-loading Aframax voyages persisted in spite of the hostile conditions and unfavorable arbitrage economics.

Shipping WTI MEH crude from the USGC into Northwest Europe was at a disincentive of $1.39/b compared to European Forties crude on Feb. 24, according to S&P Global Platts Analytics Crude arbFlow arbitrage calculator, and averaged a disincentive of $0.37/b the week ended Feb. 19.

Nevertheless, between Feb. 15-24, at least 10 Aframaxes were reported on subjects for USGC-Transatlantic voyages.

 

Suezmaxes stealing Aframax business

 

In recent days, charterers have shifted Aframax inquiries for USGC-Transatlantic runs to the Suezmax segment to avoid paying steep freight rates for the smaller tankers.

ExxonMobil, Phillips 66, and Mercuria are among charterers that have taken Suezmaxes for the voyage in place of their smaller counterpart, booking the Front Idun, Front Silkeborg, and Karvounis, respectively, all for late February or early March loadings.

The cost of a Suezmax lifting 145,000 mt crude cargoes on USGC-UK Continent runs was last assessed Feb. 25 at w60, or $9.94/mt. Taking a Suezmax on a trans-Atlantic voyage out of the USGC is typically cheaper on a $/mt basis, due to economies of scale, however the cost difference has significantly widened since Aframax rates have spiked.

Currently there is an incentive of $11.31/mt to take a Suezmax over an Aframax on the USGC-Transatlantic run, up $7.25/mt from the spread between the two tanker classes on Feb. 12, when Suezmax freight priced $4.06/mt less than the cost of moving an Aframax on the route, Platts data showed.

Despite rising bunker prices and a steady stream of cargo inquiry over the past few weeks, the Suezmax segment is just now seeing an upside to freight as the entrance of Aframax cargoes into the market has helped drain a lengthy global position list.


Listen: Clean tankers face extended weakness amid refinery outages, diesel hike

 
FeaturingMarieke Alsguth     Maha Husseini     Troy Duffie 

Refinery outages from the cold snap on the US Gulf Coast Feb. 15-19 put even more bearish pressure on the already weak Americas clean tanker market, and heightened diesel prices in the USGC.

With petroleum product demand still low globally, the Americas clean tanker market continues to move along the freight floor as typical arbitrages to Europe and Latin America remain closed. Heightened diesel prices and ever-drawing stocks in the USGC have reversed the typical arbitrage to Europe, exacerbating the already low cargo supply for clean tankers looking to carry USGC product exports to other regions.

Marieke Alsguth and Troy Duffie of the Americas shipping team sit down with Maha Husseini from the clean oil products team in Houston to discuss immediate impacts from the mid-February cold snap refinery outages and potential outlooks for petroleum product demand in the Americas as the vaccine effort rolls out.

 


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37th Asia Pacific Petroleum (APPEC 2021)

  • 27 Sep 2021 | 00:00 UTC
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FACTBOX: Petrochemical restart efforts continue post freeze

Houston — US Gulf Coast petrochemical producers were working to restart facilities that shut when a deep freeze hit the region the week of Feb. 15, but those efforts faced ups and downs amid detailed damage assessments.

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Some producers were finding pinhole leaks or other problems in pipes exposed to sustained sub-freezing temperatures during startup processes. Market sources said ethylene producers were working to restart crackers once shut downstream derivative plants were deemed able to restart as well.

ExxonMobil, which has restarted the 826,000 mt/year cracker at its Beaumont, Texas, chemical complex, also was restarting three crackers with a combined capacity of 3.8 million mt/year at its Baytown, Texas, complex as well, according to a Feb. 26 notice the company distributed via a community hotline.

Two of three US propane dehydrogenation (PDH) plants also were working to restart, which helped prompt spot February polymer-grade propylene prices to decline sharply from Feb. 23 highs.

Market sources said, however, that the industry's overall recovery from the freeze and its fallout on supply chain backlogs, was expected to stretch into Q2 2021, particularly if producers face lengthy repairs to plants after more than three days of sustained sub-freezing temperatures.

Global prices were rising on expectations of interrupted US supply and uncertainty of how long those interruptions would last.

"Raw materials already were tight," a market source said. "Now we're seeing more panic, buyers panicking, trying to lock everything in."

Here is a rundown of fallout from the freeze:

FORCE MAJEURES

**Dow Chemical: Declared Feb. 19, on 2-ethylhexanol and butanol products from its Texas City, Texas complex

**Formosa Plastics USA: Declared Feb. 19 on US polyethylene

**BASF: Declared Feb. 19 on dioctyl terephthalate (DOTP), a plasticizer, at its Pasadena, Texas, site

**Westlake Chemical: Declared Feb. 19 on US caustic soda, chlorine, PVC and VCM; company has 2.9 million mt/year of US caustic soda capacity, more than 2 million mt/year of PVC capacity, 2.6 million mt/year of VCM; more than 2.26 million mt/year of chlorine capacity at five affected sites

**Formosa Plastics USA: Declared Feb. 18 on US PVC, 1.3 million mt/year of capacity at Point Comfort, Texas, and Baton Rouge, Louisiana, complexes.

**Dow Chemical: Declared Feb. 18 on multiple intermediate chemicals produced at plants in Deer Park, Freeport, Texas City and Bayport Texas, Hahnville, Louisiana, and Louisville, Kentucky; declaration includes vinyl acetate monomer (VAM), methyl methacrylate (MMA), glacial methacrylic acid (GMAA), butyl methacrylate (BMA), glycidyl methacrylate (GMA), 2-ethylhexyl Acrylate (2EHA), butyl acrylate (BA), and others; Dow informed South American customers

**Celanese: Declared force majeure Feb. 18 on multiple intermediate chemicals normally sold to customers in the US, Europe and the Middle East, including acetic acid, VAM, ethyl acetate and ethylene vinyl acetate (EVA)

**Total: Declared Feb. 17 on polypropylene produced at its 1.15 million mt/year La Porte, Texas, facility

**Formosa Plastics USA: Declared Feb. 17 on all chlor-alkali products

**LyondellBasell: Declared Feb. 16 on styrene monomer

**Vestolit: Declared Feb. 16 on PVC produced at its Colombia and Mexico plants on lack of upstream vinyl chloride monomer feedstock from US suppliers; plants have a combined 1.8 million mt/year of capacity

**Olin: Declared Feb. 16 on US chlorine, caustic soda, ethylene dichloride, epoxy, hydrochloric acid and other products produced at its Freeport, Texas, complex; ; on Feb. 18 Olin expanded the declaration in a separate letter to customers to include products made system-wide

**MEGlobal: Declared Feb. 15 on MEG produced at its Freeport, Texas, site

**LyondellBasell: Declared Feb. 15 on US polyethylene

**Flint Hills Resources: Declared Feb. 15 on polypropylene produced at Longview, Texas

**OxyChem: Declared Feb. 15 on US chlorine, caustic soda, EDC, vinyl chloride monomer and polyvinyl chloride

**LyondellBasell: Declared Feb. 15 on US polypropylene

**INEOS Olefins and Polymers USA: Declared Feb. 15 on polypropylene

**OQ Chemicals: Declared Feb. 15 on US oxo-alcohols, aldehydes, acids and esters produced at its Bat City, Texas, operations

SHUTDOWNS

**Westlake Chemical: 331,763 mt/year cracker, 249,475 mt/year chlorine, 274,423 mt/year caustic soda, 680,388 mt/year vinyl chloride monomer, 680,388 mt/year polyvinyl chloride, Calvert City, Kentucky

**Eastman Chemical: 7.33 million mt/year ethylene capacity, Longview, Texas

**INEOS: 1.89 million mt/year of ethylene capacity, Chocolate Bayou, Texas

**LyondellBasell: 3.26 million mt/year of ethylene capacity in Channelview, La Porte and Corpus Christi, Texas

**MEGlobal: 750,000 mt/year monoethylene glycol (MEG) plant, Freeport, Texas

**Total: 1.15 million mt/year PP, La Porte, Texas

**Lotte Chemical: 700,000 mt/year MEG, Lake Charles, Louisiana; 1 million mt/year joint-venture cracker

**Braskem: 360,000 mt/year PP Freeport, Texas; 400,000 mt/year PP La Porte, Texas; 225,000 mt/year PP Seadrift, Texas

**ExxonMobil: Cumulative 1.53 million mt/year from three units, HDPE and LLDPE capacity, Mont Belvieu, Texas

**Indorama Ventures: Port Neches, Texas, 235,867 mt/year cracker, 1 million mt/year ethylene oxide/MEG unit, 238,135 mt/year propylene oxide unit, and 988,000 mt/year of MTBE capacity; Clear Lake, Texas, 435,000 mt/year EO, 358,000 mt/year MEG.

**Olin: Freeport, Texas complex, with 3 million mt/year of caustic soda and 2.73 million mt/year of chlorine capacity; 748,000 mt/year of EDC

**OxyChem: Ingleside, Texas, 544,000 mt/year cracker; 248,000 mt/year chlor-alkali; 680,000 mt/year EDC; Deer Park and Pasadena, Texas, 1.27 million mt in PVC capacity; 1.79 million mt/year of VCM capacity; 580,000 mt/year chlor-alkali

**Shintech: Freeport, Texas: 1.45 million mt/year PVC

**Formosa Plastics USA: Entire Point Comfort, Texas, complex, including three crackers with a cumulative capacity of 2.76 million mt/year; 875,000 mt/year of high density polyethylene; 400,000 mt/year of low density PE; 465,000 mt/year of linear low density PE; two PP units with combined capacity of 1.7 million mt/year; 798,000 mt/year of PVC; 1 million mt/year of caustic soda and 910,000 mt/year of chlorine; 753,000 mt/year of VCM; 1.478 million mt/year of EDC; and a cumulative 1.17 million mt/year of monoethylene glycol operated by sister company Nan Ya Plastics.

**Dow Chemical: Certain units offline within Dow sites along the US Gulf Coast, but the company did not specify. Dow's Gulf Coast operations two LDPE units with 552,000 mt/year and 186,000 mt/year HDPE; Dow's Seadrift, Texas, complex includes 490,000 mt/year LLDPE and 390,000 mt/year HDPE; Dow told South American customers in a letter dated Feb. 16 that the company was assessing impact on PE production capacity "and we know that our ability to supply various products could be affected."

**TPC Group: Houston site shut down, including 544,310 mt/year butadiene unit, when boilers lost steam

**Motiva Chemicals: Port Arthur, 635,000 mt/year mixed-feed cracker

**Shell: Deer Park, Texas, refining and chemical complex, including two crackers with a combined 961,000 mt/year of capacity

**Chevron Phillips Chemical: Pasadena, Texas, 998,000 mt/year HDPE; also has cumulative 5.35 million mt/year in capacity of six crackers in Port Arthur, Baytown and Sweeny, Texas

RESTARTS

**Shell: Norco, Louisiana, refining and chemical complex, including two crackers with a combined capacity of 1.42 million mt/year

**Baystar Polymers: Restarting 408,000 mt/year HDPE unit at Bayport, Texas

**Dow Chemical: Restarting three crackers at Freeport, Texas, with a combined 3.2 million mt/year of ethylene capacity

**Flint Hills Resources: Restarting 658,000 mt/year PDH unit, Houston

**Dow Chemical: Restarting 750,000 mt/year PDH, Freeport, Texas

**Braskem: Restarting 450,000 mt/year PP, La Porte, Texas

**Dow Chemical: restarting 680,000 mt/year cracker in Orange, Texas

**ExxonMobil: Beaumont, Texas, restart activity begun; 826,000 mt/year cracker operational; 225,000 mt/year HDPE; 240,000 mt/year LDPE; 1.19 million mt/year LLDPE with some HDPE capacity

**ExxonMobil: Baytown, Texas, restart activity begun; three crackers with a combined capacity of 3.8 million mt/year; 800,000 mt/year PP

**Sasol: Restaring 380,000 mt/year EO/MEG, Lake Charles, Louisiana

**Formosa Plastics USA: 513,000 mt/year PVC, 653,000 mt/year VCM, Baton Rouge, Louisiana

**LyondellBasell: Lake Charles, Louisiana, joint-venture 470,000 mt/year LLDPE; 420,000 mt/year LDPE

PRICES

**February US polymer-grade prices fell 9.25 cents/lb on the day to 85.50 cents/lb FD UDG, and March prices fell the same amount to 76.75 cents/lb FD USG. February prices have fallen 40.50 cents/lb from an all-time high of $1.25/lb FD USG on Feb. 23; March prices have fallen 18.25 cents/lb from 95 cents/lb on the same date.

**US spot ethylene prices for March rose 1.75 cents on the day and 7.50 cents on the week Feb. 26 to 52.75 cents/lb FD Mont Belvieu, while forward-month April ethylene was assessed at 52.75 cents FD Mont Belvieu, also up 1.75 cents on the day and 8.50 cents on the week. March Choctaw ethylene was assessed at 52.50 cents/lb FD Choctaw, up 2 cents on the day and 9 cents on the week Feb. 26, while forward-month April ethylene was assessed at 51.75 cents/lb, up 2 cents on the day and 9 cents on the week.


Insight from Moscow: Russia's strong economic position among OPEC+ members underpins its negotiating power AuthorRosemary Griffin 

In early 2021 Russia secured an increase to its oil output quota under the OPEC+ agreement for February and March, the latest sign that Russia's comparatively strong economic position is allowing it to push for better terms under the deal.

Economics are set to underpin future negotiations in 2021, with Russia likely to continue to push to increase output volumes, despite uncertainty over demand.

Moscow-based analysts welcomed the latest OPEC+ decision, which allowed Russia to increase output by 65,000 b/d in February, and a further 65,000 b/d in March. Russia's crude output was 9.10 million b/d in December according to the S&P Global Platts OPEC+ production survey.

In contrast, most other members of the group will maintain output at January levels, with Saudi Arabia announcing that it would add an extra 1 million b/d cut. Russia's close ally Kazakhstan also secured a small increase to its quota from February.

Russia is better able to absorb oil shocks than many of its OPEC+ allies, primarily because of its flexible exchange rate to the US dollar, the currency used to price its crude. The ruble's value tends to fall against the US dollar when oil prices drop. This allows Russian producers, whose costs are primarily in rubles, to minimize the impact of low prices on their operations.

On March 6, 2020 when Russia temporarily walked away from the OPEC + agreement, one dollar was worth 66.2 rubles. By February 16, 2021 the ruble had weakened to 73.31 against the US dollar, according to data from Russia's Central Bank.

 

Speaking after the January meeting where the new quotas were agreed, Russian deputy prime minister Alexander Novak said he hoped the outlook would be even more positive in two months' time, and there would be an option to further increase production.

Russia is aiming to bring back 2 million b/d of production compared to its December 2020 output level by June. Analysts at VTB Capital estimate that Russia's quota may increase further by some 80,000 b/d in April-June, if Russia is to achieve this aim.

Future policy

Uncertainty over the demand situation makes it hard to predict what may be on the table when the group next holds its full ministerial meeting on March 4.

Many countries continue to struggle with rising coronavirus cases and have tightened lockdown measures in recent months. While there is significant optimism around vaccines, there is also a lot of uncertainty over how quickly these can be rolled out, and when that will translate to a return to normal economic activity.

Even under negative demand forecasts, Russia is likely to remain in a comparatively strong economic position. As well as the flexible ruble-to-dollar exchange rate, the fiscal rule introduced in 2017 has reduced revenue volatility and softened the impact of oil price fluctuations on Russia's economy and budget.

Oil prices in early 2021 have so far been above those included in the Russian state budget. Approved late last year, the budget includes Urals oil prices of $45.3/b in 2021, $46.6/b in 2022, and $47.5/b in 2023.

Infographic of key economic indicators for OPEC+ members oil price gdp country rating

Click to enlarge

Furthermore, Russia is pushing to reduce the state budget's reliance on oil and gas revenues, which has for decades left Russian oil producers exposed to significant changes in the tax regime during times of economic turbulence. Producers have frequently said that this complicates planning long-term development projects which require taxation stability to accurately evaluate costs.

Russian President Vladimir Putin said last year that hydrocarbons revenues will account for one third of all budget revenues in 2021, down from half in 2011.

In a positive demand scenario these factors are likely to underpin a bid to secure further production increases later in 2021. If the group faces a more negative scenario, requiring further cuts, Russia is likely to seek smaller cuts for shorter durations.

A lot is also likely to depend on US shale production volumes. The risk of losing market share to US producers has long been raised by Russian oil producers as a reason to be cautious in committing to significant crude output cuts.

Despite economic differences, and the likelihood of further disputes this year, analysts expect Russia to remain part of OPEC+, which President Vladimir Putin continues to support, and has become a key part of Russia's foreign strategy.


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