It is never ideal if you own a fleet of crude tankers and the world’s oil producers remove millions of barrels of cargo from the market to avert a glut. Nor is a collapse in charter rates normally the best news.
While both those things happened in the past few months, the people paid to evaluate the shipping industry’s prospects are actually turning a little more bullish.
The analysts’ optimism stems from a conviction that the world’s refineries will have to process more crude to supply ships with new kinds of fuel next year under rules set out by the International Maritime Organization (IMO).
On top of that, historic trade flows are at risk of disruption as OPEC and allied producers curb output of one type of crude at a time when US drillers boost supplies of another.
West Texas Intermediate on Friday rose 0.2 percent to US$52.72 per barrel, down 4.6 percent for the week.
Brent crude on Friday settled at US$62.10 per barrel, up 0.8 percent for the day, but down 1 percent for the week.
“Despite the latest meltdown, we remain bullish about the tanker market mainly because we believe IMO 2020 requirements will push for oil production growth, which will support freight rates” from the second half of this year, said Espen Fjermestad, an analyst at Fearnley Securities AS in Oslo, Norway. “Refineries will need to increase runs to meet increased demand.”
The Baltic Dirty Tanker Index, a wide measure of charter rates mostly for moving crude, has plunged almost 30 percent in the past three months.
OPEC and allied producers late last year agreed to cut more than 200 million barrels of total output through June.
Undeterred, shipping analysts surveyed by Bloomberg have, since early November last year, raised their forecasts for what every class of mainstream crude carrier will earn this year.
The freight market would benefit from IMO 2020 later this year, firms including Clarksons Platou and Evercore ISI said.
The measures, designed to limit sulfur emissions, are expected to boost the amount of crude being processed, because refineries will need to make more diesel-like fuels.
Heavier crude is more suited to making IMO-compliant fuel.
Refineries produce about 25 to 30 percent of middle distillates using light US oil, compared with about 35 percent from heavy crude, Fjermestad said.
Tanker spot rates would continue to decline in the first half of the year because of oil supply cuts and fleet growth, said Jonathan Chappell, an analyst focusing on marine transportation equities at Evercore ISI.
After that, things should improve, he said.
“With refinery utilization rising and newbuild deliveries set to slow, we are expecting a relatively strong snapback in rates, which is likely to be exacerbated by expected trade route disruption associated with the preparation for the onset of IMO 2020,” he added.
Additional reporting by Reuters
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to