Hidden Crude Tanker Trends

Global demand for crude oil (including biofuels) in 2019 amounted to 100.1 million barrels per day and decreased to 91.4 million barrels per day in 2020. In 2021 we are expecting to see volumes recover a bit with forecasts centering around 97.5m bbl/d which is in line with 2017’s numbers.

This would suggest a major setback for the seaborne crude oil trade if viewed simply in this manner. Indeed, the story for 2020 was an obvious one but shrouded behind the headlines for Covid-19 and the consequent crude tanker demand destruction were other interesting developments suggesting that we may be further along a path to recovery than simple crude volumes would suggest.

One trend that will support a return of, and growth beyond, past cargo mile demand is that a great deal of crude volume demand growth is set to take place in nations which are heavily reliant on seaborne crude imports. Here we take a look at some interesting developments for crude tankers in China and India.

China

China’s dependence on crude oil imports has been increasing in recent years as domestic production faltered while demand grew. The world’s top oil importer covered 73.4% of its oil demand with imported oil in the first half of 2020.

VLCCs, which are preferred by China, have therefore found their fate increasingly aligned with Chinese demand.

For example, for the six months from August 17, 2015-February 17, 2016 the VLCC trade didn’t have a majority of its routes concentrated in one nation or another.

Source: VesselsValue – Top VLCC Routes August 17, 2015-February 17, 2016

But August 17, 2020-February 17, 2021 tells a strikingly different story.

Source: VesselsValue – Top VLCC Routes August 17, 2020-February 17, 2021

Keen observers also might note the number of voyages for non-Chinese routes remaining in those top spots stagnated or even dropped, placing an even greater emphasis on the link between Chinese demand and VLCC demand.

As China continues to mop up an increasing amount of global seaborne crude, we are seeing that crude originate further away as opposed to the shorter haul from established MEG suppliers.

Source: VesselsValue – VLCC MEG to China Route Cargo Miles History

Brazil, the USA, Norway, and other long haulers have been supplying a growing share of Chinese crude imports and all are poised for considerable further gains.

Brazil has seen its exports to China soar over the past years and over the course of the past year composed over 10% of the total VLCC cargo miles into China.

Source: VesselsValue – VLCC Brazil to China Route Cargo Miles History

A budding trading relationship with Norway has led to the creation of a new major trade lane for VLCCs, which over the past year represented 6% of the cargo miles into China.

Source: VesselsValue – VLCC Norway to China Route Cargo Miles History

The Phase One trade agreement between China and the US has led to the reemergence of a once promising trade lane, which over the course of the past year composed 8.8% of the total VLCC cargo miles into China.

Source: VesselsValue – VLCC US to China Route Cargo Miles History

Looking at this another way, over the past six months the US Gulf, the South American East Coast, and NW Europe regions have been responsible for just under 15% in terms of volume brought into China but were responsible for over 26% of the total cargo miles traveled into China.

Therefore, even though they may not account for a great deal of volume being brought in they are a very important component of Chinese VLCC demand, and these routes are growing at a decent pace (to say the least).

So, when we hear forecasts of sub-two percent volume demand growth for VLCCs, when we look at it from a cargo mile standpoint, we see things might not be so bad. It also would explain why I believe VLCC cargo mile demand growth will likely come in significantly higher.

India

India imports approximately 82% of its crude oil and while the government has made bold claims that it will reduce its import dependency, it has yet to make any meaningful progress nor done anything that would suggest even a future correction years down the road.

India, which is projected to be the fastest growing energy market through 2040, will remain heavily reliant on imports for years to come and the IEA agrees forecasting that dependence to rise to 90% by 2030 and 92% by 2040.

While the fate of VLCCs is increasingly tied to China, that same dynamic is unfolding with Suezmaxes and India.

Sticking with the five year comparison theme, back in January of 2016 Suezmaxes registered a total of 10.30 bn MT NM. But in January of 2021 they posted a whopping 33.70 bn MT NM, well over a 200% increase during that period.

VLCCs heading into India however have not seen that growth with 55.55 bn MT NM in January of 2016 declining to 47.90 bn MT NM in January of 2021.

Lest you think these selected months are one offs, the charts below show the long term story of India’s developing preference for Suezmax utilization.

Source: VesselsValue –  Suezmax to India Route Cargo Miles History
Source: VesselsValue – VLCC to India Route Cargo Miles History

This is perhaps one of the most interesting trends to watch – the nation with the highest forecast energy demand growth and is heavily import dependent seems to prefer Suezmaxes.

But another interesting trend is where these imports are coming from. 2020 saw the emergence of a long-expected development, a consistent US to India trade lane for crude oil.

Source: VesselsValue – Crude Tankers US to India Route Cargo Miles History

Loadings had been sporadic in 2018 but 2019 was the first glimmer of regularity. 2020 confirmed this trend in a major way as nearly every week saw consistent loadings.

Looking at total VLCC, Suezmax and Aframax cargoes, this January the US was the top supplier of crude to India, just barely edging out their typical top supplier, Iraq.

But here’s the reason why that’s so crucial, these figures for January show that while the US provided 18.18% in terms of volumes, those cargoes represented over 31% of the total cargo miles to India.

Going forward it is expected that VLCCs and Suezmaxes will benefit from increasing long hauls into China and India, respectively.