Large Tankers To Benefit From Caribbean Crude Oil Shift To Asia

We believe that surging domestic production in the US is will affect the tanker routes in the Caribbean, as countries such as Colombia and Mexico are forced to look for new markets. While we expect Mexico to continue to look towards Europe, we believe Colombia and Venezuela will find ready markets for their sour crude in countries such as China, due to its escalating car ownership levels. We believe this will, in turn, benefit VLCC vessels and the Suezmax class, both of which are large enough to make the long-haul journeys from the Caribbean and take advantage of economies of scale. However, we believe this growing trend will be detrimental to the smaller Aframax class which will be reduced to a small-load Caribbean courier.

Previously, Caribbean crude oil was the main feedstock for US refineries on the Gulf Coast. However there is an ongoing decline in US oil imports from the Caribbean Basin due to the rapid increase in its domestic production of oil. This reduced demand, which current estimates put at around 500,000 barrels per day (b/d), is having a marked impact on the routes taken by oil tankers in the Caribbean, as large producers in the Caribbean Basin are forced to look elsewhere for markets for their products. Tanker lines are being obliged to redesign their chartering strategies to take this into account.

This shale revolution has weakened the market for the US' traditional crude oil suppliers (such as Mexico and other oil producing countries in the Caribbean Basin). According to our calculations, net crude oil imports in the US have fallen 16.2% from its peak of 10.09mn b/d in 2006 to 8.46mn b/d in 2012 as crude oil output rose 27.4% from 5.09mn b/d to 6.48mn b/d over the same period. We expect this trend to continue to intensify over the coming years.

Domestic Production Negates Need For Imports
US Crude And Other Petroleum Liquids Production ('000) b/d

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Sector: Freight Transport, Shipping

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