The tanker market is expected to keep finding support from US oil exports moving forward. In its latest weekly report, shipbroker Gibson said that “as the US oil sector recovers from several challenging years, attention has been turning to US oil rig counts as a barometer of the health and productive capacity of the US oil industry. Even before the pandemic, the US oil rig count had been in decline from its October 2014 high of 1609 units to 667 by March 2020 and a current count of 556”.
According to Gibson, “shale producers are now focused on reducing CAPEX and creating value for investors through M&A and share dividends. Whilst 2021 and 2022 saw growth in rig numbers, 2023 has been challenging. Inflationary pressure, labour shortages and concerns about oil demand have all played a role in seeing rig counts fall once again. The use of operating revenue for share buy backs and dividend increases instead of additional E&P expenditure is likely adding to falling rig counts”.
“Nevertheless, a new trend has emerged in which despite falling rig numbers, US oil output has been steadily increasing in line with the aim of many operators to increase the efficiency of their projects. In order to make this happen, operators are seeking to maximise recoverable oil at these sites through a combination of new drilling technologies and enhanced oil recovery (EOR) techniques. Looking ahead, we may see further decline in rig counts given the underlying pressures faced by the industry. This is not surprising given that the US shale industry is now maturing and will naturally start to evolve into a new business model focused on financial returns and improving capital structures rather than just expansion. Although, there are still some promising areas for future development in parts of the Permian basin which are expected to represent the bulk of new well installations”, the shipbroker mentioned.
“The IEA is forecasting total US oil production (excluding NGLs) will average 12.7 mbd and then increase to 13 mbd in 2024. How does this impact the tanker market? In theory, higher crude production going forward should mean more cargo for export. However, whilst US crude exports are currently averaging 3.8 mbd in 2023, up from 3.37 mbd last year; flows data shows declining monthly exports since March as US refinery utilisation has risen seasonally. There is also growing interest by the US administration in refilling the US SPR with some initial purchases announced but these are unlikely to have a meaningful impact on the tanker market given the relatively small scale of these purchases. Whether or not these acquisitions ramp up remains to be seen but for now this seems unlikely given current market dynamics”, Gibson noted.
“Nonetheless, growing demand for US crude will continue to support export volumes. Short term headwinds from higher seasonal domestic crude demand will limit the potential over the summer months, yet in the long term, continued US production growth will translate into increased export volumes to the benefit of the crude tanker market”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide