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OPEC is back in control but needs to avoid scoring an own goal

This article examines recent progress and initiatives by the shipping industry to meet new IMO targets and provides Signal Ocean Platform data on emissions developments and trends.

The Signal Group
April 2, 2024

OPEC is back in control of oil markets but it will need to stop squabbling if it wants to avoid scoring a spectacular own goal. A spat in recent days between Saudi Arabia and the UAE threatened to undo the cartel’s hard won gains of the past 18 months as it struggled to rebalance global oil markets. 

The two countries failed to agree on how to increase supply. It will take touch and composure to safeguard the post-pandemic oil market recovery. And care will be needed to avoid stoking inflationary pressures - particularly in nervous consuming nations. 

The cartel will find itself quickly thrust back into the spotlight if it fails to keep a lid on prices. But opening the taps too wide may defer important decisions needed to address climate change.

The group met last week but abandoned talks and set no new date to resume them. It is unlikely the impasse will last for long but any uncertainty will unsettle oil markets that have only recently become balanced. Signal Ocean data for Very Large Crude Carriers (VLCC) traffic suggests key tanker routes are operating smoothly and responding to growing oil demand.

The group has been in tight spots before and usually finds a way out. But this time feels different. The world is more connected but it is also more unpredictable. And the challenges are more urgent. In particular, the economic recovery has been bumpy with some countries and industries rallying back quickly while others lag or are trying to restructure. And the asymmetric impact of changes relating to climate change are beginning to bite.

OPEC is a naturally shy organisation. But it will increasingly need to recognise - and participate - in the wider context within which it now operates. Global inflationary pressures are being watched closely and it remains unclear whether the underlying trend is upwards or whether it will be a temporary blip.

Signal Ocean data show the recovery in oil demand is continuing as industries around the world rebound and also refill supply chains depleted last summer at the height of the pandemic. Long haul air travel and demand for jet fuel continues to lag the overall recovery but this has been offset by demand for diesel and gasoline as regional and local travel accelerates.

The data for VLCC (Very Large Crude Carrier) traffic suggests key routes from the Arabian Gulf and Africa to Eastern destinations are growing steadily again after a dip in the spring months. The chart below shows the average TonMiles (see below for Methodology) for the routes to China, India, Singapore, Vietnam, Malaysia, Thailand, Korea, Japan, Pakistan, the Philippines and Australia. Note: 

The market for VLCCs sailing from the Arabian Gulf to the East seems to be functioning smoothly. Tanker supply is beginning to show some stability according to Signal Ocean data. There are over 30 vessels available for loading in the Arabian Gulf to go East. This is near the upper end of the range for the past 90 days and is for tankers arriving within 20 days. The data uses Ras Tanura as the reference loading port. Meanwhile, tanker fixture rates are hovering near 31 WorldScale which is near the low end of the same 90 day range. Oil traders should have little difficulty chartering prompt vessels at reasonable prices, according to the data.

Also, port congestion in China appears to have moderated over the past year suggesting that any previous bottlenecks and disruptions caused by the pandemic are beginning to be resolved. The number of VLCCs waiting has fallen to around 32 this month compared to 55 last September. 

Collectively, different Signal Ocean data suggests the key oil trading routes are beginning to normalise as Asian economies recover and stabilise. However, the wider context remains fragile. Central bankers remain uncertain about whether the current inflationary uptick is temporary. If they get spooked into raising interest rates too quickly the nascent economic strength could be quickly choked off.

OPEC needs to be subtle and accurate as it re-opens the taps. Erring on the side of largess would make sense for the cartel in the short term. It doesn’t want to scare the bankers - and the wider consuming audience - by keeping the market too tight. But there are storm clouds on the horizon. Keeping a cap on oil prices by ensuring ample supply will discourage and possibly delay key investment decisions related to climate change.

What OPEC needs to avoid are public squabbles. It should be striving to drive policy in a composed and predictable way. The global economy is fragile and needs a smooth ride. Last week when the United Arab Emirates held out against a deal putting the groups carefully built cohesion at risk. It was quickly dealt with but also a timely reminder of the group’s sometimes fractious and erratic past.

Methodology

The TonMiles data represents ton miles of laden seagoing VLCC vessels.

TonMilesPerLegPerDay = Deadweight * MilesPerLeg / SeagoingDaysPerLeg, where MilesPerLeg are the miles of each leg of a voyage and SeagoingDaysPerLeg = NextArrivalDate - SailingDate.

To find out more about The Signal Ocean platform, contact us here.

-Republishing is allowed with active link to source

Creating a sustainable world requires us to embark on a journey towards a zero emission future, where every step is a commitment to preserve our planet for future generations.
Albert Greenway
Environmental Scientist, Sustainability Expert
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Increased Use of Renewable Energy:

Shipping companies are embracing renewable energy sources to power onboard systems and reduce emissions during port operations. Solar panels and wind turbines are being installed on vessels to generate clean energy, reducing reliance on auxiliary engines, and cutting down emissions. Shore power facilities in ports allow ships to connect to the electrical grid, eliminating the need for onboard generators while docked.

Collaboration and Industry Partnerships:

Recognizing that addressing emissions requires collective action, shipping companies, governments, and organizations have formed partnerships and collaborations. These initiatives focus on research and development, sharing best practices, and promoting knowledge transfer. Joint projects aim to develop and deploy innovative technologies, improve infrastructure, and create a supportive regulatory framework to accelerate the industry's transition towards a greener future. The Zero Emission Shipping - Mission Innovation.

To pave the way for a greener future in shipping, the availability of alternative fuels plays a vital role in their widespread adoption. However, this availability is influenced by factors such as port infrastructure, local regulations, and government policies. As the demand for cleaner fuels in shipping rises and environmental regulations become more stringent, efforts are underway to improve the accessibility of these fuels through infrastructure development, collaborations, and investments in production facilities.

Liquefied Natural Gas (LNG) infrastructure has seen significant growth in recent years, resulting in more LNG bunkering facilities and LNG-powered vessels. Nonetheless, the availability of LNG as a marine fuel can still vary depending on the region. To ensure consistent availability worldwide, there is a need for further development of LNG supply chains and infrastructure. For biofuels, their availability hinges on production capacity and the availability of feedstock. Although biofuels are being produced and utilized in various sectors, their availability as a marine fuel remains limited. Scaling up biofuel production and establishing robust supply chains are imperative to ensure wider availability within the shipping industry.Hydrogen, as a fuel for maritime applications, is still in the early stages of infrastructure development. While some hydrogen vessels have been tested or introduced in the first quarter of last year, the infrastructure required for hydrogen production and distribution needs further advancement.

Ammonia, as a marine fuel, currently faces limitations in availability. The production, storage, and handling infrastructure for ammonia need further development to support its widespread use in the shipping industry.Methanol, on the other hand, is already a commercially available fuel and has been used as a blend with conventional fuels in some ships. However, its availability as a standalone marine fuel can still be limited in certain regions. Bureau Veritas in October 2022 published a White Paper for the Alternative Fuels Outlook. This white paper provides a comprehensive overview of alternative fuels for the shipping industry, taking into account key factors such as technological maturity, availability, safety, emissions, and regulations.

Creating a sustainable world requires us to embark on a journey towards a zero emission future, where every step is a commitment to preserve our planet for future generations.
Albert Greenway
Environmental Scientist, Sustainability Expert

Increased Use of Renewable Energy:

Shipping companies are embracing renewable energy sources to power onboard systems and reduce emissions during port operations. Solar panels and wind turbines are being installed on vessels to generate clean energy, reducing reliance on auxiliary engines, and cutting down emissions. Shore power facilities in ports allow ships to connect to the electrical grid, eliminating the need for onboard generators while docked.

Collaboration and Industry Partnerships:

Recognizing that addressing emissions requires collective action, shipping companies, governments, and organizations have formed partnerships and collaborations. These initiatives focus on research and development, sharing best practices, and promoting knowledge transfer. Joint projects aim to develop and deploy innovative technologies, improve infrastructure, and create a supportive regulatory framework to accelerate the industry's transition towards a greener future. The Zero Emission Shipping - Mission Innovation.

To pave the way for a greener future in shipping, the availability of alternative fuels plays a vital role in their widespread adoption. However, this availability is influenced by factors such as port infrastructure, local regulations, and government policies. As the demand for cleaner fuels in shipping rises and environmental regulations become more stringent, efforts are underway to improve the accessibility of these fuels through infrastructure development, collaborations, and investments in production facilities.

Liquefied Natural Gas (LNG) infrastructure has seen significant growth in recent years, resulting in more LNG bunkering facilities and LNG-powered vessels. Nonetheless, the availability of LNG as a marine fuel can still vary depending on the region. To ensure consistent availability worldwide, there is a need for further development of LNG supply chains and infrastructure. For biofuels, their availability hinges on production capacity and the availability of feedstock. Although biofuels are being produced and utilized in various sectors, their availability as a marine fuel remains limited. Scaling up biofuel production and establishing robust supply chains are imperative to ensure wider availability within the shipping industry.Hydrogen, as a fuel for maritime applications, is still in the early stages of infrastructure development. While some hydrogen vessels have been tested or introduced in the first quarter of last year, the infrastructure required for hydrogen production and distribution needs further advancement.

Ammonia, as a marine fuel, currently faces limitations in availability. The production, storage, and handling infrastructure for ammonia need further development to support its widespread use in the shipping industry.Methanol, on the other hand, is already a commercially available fuel and has been used as a blend with conventional fuels in some ships. However, its availability as a standalone marine fuel can still be limited in certain regions. Bureau Veritas in October 2022 published a White Paper for the Alternative Fuels Outlook. This white paper provides a comprehensive overview of alternative fuels for the shipping industry, taking into account key factors such as technological maturity, availability, safety, emissions, and regulations.

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OPEC is back in control but needs to avoid scoring an own goal

Posted by
Sam Arnold-Forster
|
July 7, 2021

OPEC is back in control of oil markets but it will need to stop squabbling if it wants to avoid scoring a spectacular own goal. A spat in recent days between Saudi Arabia and the UAE threatened to undo the cartel’s hard won gains of the past 18 months as it struggled to rebalance global oil markets. 

The two countries failed to agree on how to increase supply. It will take touch and composure to safeguard the post-pandemic oil market recovery. And care will be needed to avoid stoking inflationary pressures - particularly in nervous consuming nations. 

The cartel will find itself quickly thrust back into the spotlight if it fails to keep a lid on prices. But opening the taps too wide may defer important decisions needed to address climate change.

The group met last week but abandoned talks and set no new date to resume them. It is unlikely the impasse will last for long but any uncertainty will unsettle oil markets that have only recently become balanced. Signal Ocean data for Very Large Crude Carriers (VLCC) traffic suggests key tanker routes are operating smoothly and responding to growing oil demand.

The group has been in tight spots before and usually finds a way out. But this time feels different. The world is more connected but it is also more unpredictable. And the challenges are more urgent. In particular, the economic recovery has been bumpy with some countries and industries rallying back quickly while others lag or are trying to restructure. And the asymmetric impact of changes relating to climate change are beginning to bite.

OPEC is a naturally shy organisation. But it will increasingly need to recognise - and participate - in the wider context within which it now operates. Global inflationary pressures are being watched closely and it remains unclear whether the underlying trend is upwards or whether it will be a temporary blip.

Signal Ocean data show the recovery in oil demand is continuing as industries around the world rebound and also refill supply chains depleted last summer at the height of the pandemic. Long haul air travel and demand for jet fuel continues to lag the overall recovery but this has been offset by demand for diesel and gasoline as regional and local travel accelerates.

The data for VLCC (Very Large Crude Carrier) traffic suggests key routes from the Arabian Gulf and Africa to Eastern destinations are growing steadily again after a dip in the spring months. The chart below shows the average TonMiles (see below for Methodology) for the routes to China, India, Singapore, Vietnam, Malaysia, Thailand, Korea, Japan, Pakistan, the Philippines and Australia. Note: 

The market for VLCCs sailing from the Arabian Gulf to the East seems to be functioning smoothly. Tanker supply is beginning to show some stability according to Signal Ocean data. There are over 30 vessels available for loading in the Arabian Gulf to go East. This is near the upper end of the range for the past 90 days and is for tankers arriving within 20 days. The data uses Ras Tanura as the reference loading port. Meanwhile, tanker fixture rates are hovering near 31 WorldScale which is near the low end of the same 90 day range. Oil traders should have little difficulty chartering prompt vessels at reasonable prices, according to the data.

Also, port congestion in China appears to have moderated over the past year suggesting that any previous bottlenecks and disruptions caused by the pandemic are beginning to be resolved. The number of VLCCs waiting has fallen to around 32 this month compared to 55 last September. 

Collectively, different Signal Ocean data suggests the key oil trading routes are beginning to normalise as Asian economies recover and stabilise. However, the wider context remains fragile. Central bankers remain uncertain about whether the current inflationary uptick is temporary. If they get spooked into raising interest rates too quickly the nascent economic strength could be quickly choked off.

OPEC needs to be subtle and accurate as it re-opens the taps. Erring on the side of largess would make sense for the cartel in the short term. It doesn’t want to scare the bankers - and the wider consuming audience - by keeping the market too tight. But there are storm clouds on the horizon. Keeping a cap on oil prices by ensuring ample supply will discourage and possibly delay key investment decisions related to climate change.

What OPEC needs to avoid are public squabbles. It should be striving to drive policy in a composed and predictable way. The global economy is fragile and needs a smooth ride. Last week when the United Arab Emirates held out against a deal putting the groups carefully built cohesion at risk. It was quickly dealt with but also a timely reminder of the group’s sometimes fractious and erratic past.

Methodology

The TonMiles data represents ton miles of laden seagoing VLCC vessels.

TonMilesPerLegPerDay = Deadweight * MilesPerLeg / SeagoingDaysPerLeg, where MilesPerLeg are the miles of each leg of a voyage and SeagoingDaysPerLeg = NextArrivalDate - SailingDate.

To find out more about The Signal Ocean platform, contact us here.

-Republishing is allowed with active link to source

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