BAKU, Azerbaijan, Nov.14
By Leman Zeynalova – Trend:
The US Energy Information Administration (EIA) forecasts that fourth-quarter 2019 inventories will increase by more than 0.2 million b/d, followed by further inventory builds in the first half of 2020 that will put moderate downward pressure on crude oil prices, Trend reports citing EIA’s Short-Term Energy Outlook.
EIA estimates that global inventories increased by 0.8 million b/d in October as inventory builds in other regions—some of which was likely the result of Saudi Arabia refilling stocks that it withdrew following the September production outage—offset the draws in the United States.
Freight rates for chartering crude oil tankers reached the highest levels in more than 10 years on certain routes in early October because of U.S. sanctions on Chinese shipping, according to the report.
“The cost of chartering a Very Large Crude Carrier (VLCC), a vessel with about 2 million barrels of capacity, from the Arabian Gulf to Japan increased to almost $9/b on October 14, and the cost for chartering a VLCC from the Arabian Gulf to the U.S. Gulf Coast increased to more than $8/b. These two charter routes averaged $1.34/b and $1.14/b, respectively, from January through September,” said the EIA.
Trade press reports that because of U.S. sanctions imposed on certain subsidiaries of Chinese shipping firm COSCO, shippers and other trading firms canceled bookings scheduled for early October for all vessels operated by COSCO amid high uncertainty about which vessels were sanctioned.
“The disruption contributed to not only higher rates for VLCC charters globally but also for smaller alternative charter vessels such as Suezmaxes (vessels with about 800,000 to 1 million barrels of capacity). Although tanker rates declined in late October, a sustained increase in shipping rates could affect crude oil exports in regions that have higher transportation costs, in turn affecting crude oil prices. For example, WTI prices would likely decline relative to Brent because WTI travels from Cushing, Oklahoma, to the U.S. Gulf Coast via pipeline before it can load for export. Brent, on the other hand, can load on tankers at its production area.”
However, according to EIA, the short-term spike in rates in October is unlikely to have a sustained effect on the Brent–WTI spread, which EIA forecasts will remain at $5.50/b in 2020, unchanged from the October STEO.
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