The 65 Billion Barrel Deal

Last Friday, President Trump announced that the US had reached an agreement to control 65 billion barrels of Venezuelan oil reserves in partnership with a little-known company called North American Blue Energy Partners (NABEP). The company currently produces around 250kbd, making it the 2nd largest private producer in the country and has been granted 100-year concessions on 17 oil fields with proven reserves of 65 billion barrels. As part of the deal, the US Department of War’s Office of Strategic Capital has been awarded a 35% equity stake in NABEP’s parent company, whilst the US Department of the State has been guaranteed 20% offtake and production cost from all current and future fields NABEP operates. The US will also have first right of refusal on the remaining 80% of production allowing it to exert control over additional oil supplies in emergency situations. NABEP is said to have developed a plan to rapidly scale production by investing up to $100 billion in new oil infrastructure in the country.

Separate from NABEP, earlier this week Chevron said it had been awarded additional acreage in the Orinoco Belt, adjacent to existing operations where it plans to invest more than $7 billion over the next five years, aiming to double its production to 600kbd. Eni also signed a deal on to take control the 35-billion-barrel Junín-5 field, which currently produces just 12kbd, planning to spend $1.5bn a year on the field and raise production to 400kbd.

So, what happens now? The Trump administration expects that material increases in production will be seen early next year with Energy Secretary Chris Wright anticipating 1.5mbd by mid-2027. An increase from 1.1mbd today to 1.5mbd by the mid-2027 is not entirely unrealistic with experienced operators ENI and Chevron. What is less clear is whether all the investment NABEP seeks will materialise and over what time frame, and how many other international operators are attracted to the region. In any case, there appears clear upside for production even if the pace and scale is uncertain. Goldman Sachs recently said it does not expect production to exceed 2mbd over the next couple of years given the scale of investment required.

Where does the incremental production go? Chevron and ENI appear free to trade their equity to wherever they see fit, with their refining systems in the US and Europe the primary recipients. Production from NABEP could in theory go anywhere, but with the US being guaranteed 20% offtake and having first right of refusal on the remaining 80%, the US is likely to be a key destination. Secretary Chris Wright has said the barrels could be used to refill the Strategic Petroleum Reserve (SPR) (swapped with more SPR compatible barrels), whilst it is also unclear what this deal means for previous contracts agreed with major traders in January to market Venezuelan oil.

Given all the inefficiencies and dislocation seen in the current oil market, it is difficult to draw clear conclusions for tankers in the short term. Logically, the US is likely to take the majority of Venezuelan production increases up to a point, with European equity holders sending cargoes to their own refineries. Over time, incrementally more volume is likely to head East as US refiners exhaust their appetite for heavy sour crudes. It’s worth noting that since 2013, US imports from Venezuela have not exceeded 650kbd, whilst heavy sour imports (all sources) have declined from 1.8mbd in 2013, to 750kbd last year. Heavy sour volumes from the Middle East to US could be backed out by increased Venezuelan supply, yet US volumes of heavy crude from the Middle East stood at just 60kbd last year, minimising the impact for tankers.

Overall, the real impact is likely to be an increase in the crude surplus in the Atlantic basis, supporting incremental export flows from West to East, which could also help offset the loss of US exports, as and when the SPR refill commences.

Venezuelan Crude Exports (kbd)

Crude Oil

East

The AG/Red Sea VLCC market firmed throughout the week, with prompt tonnage gradually disappearing from the list and owners gaining the upper hand. Geopolitical tensions added further support to sentiment, while activity continued to take place under the radar despite a relatively quiet surface market. Recent fixtures pushed freight higher, and with the tonnage list remaining tight, owners continue to show resistance. Attention now turns to whether fresh enquiry can maintain the momentum and how far rates can push before finding a ceiling.

The AG Suezmax market remains primarily geopolitically driven, with trading conditions continuing to be assessed on a case-by-case basis. The pool of owners willing to trade inside remains restricted, maintaining a structural premium and limiting charterers’ ability to apply meaningful downward pressure. Against this backdrop, participating owners continue to secure incremental gains, with further upside dependent on geopolitical developments and the availability of acceptable tonnage.

Asia Aframaxes close the week steady, with rates supported largely by activity ex-Australia, where fixtures concluded above last-done levels, underpinned by a firm LR2 market. Regional demand, on the other hand, remained limited, though this has done little to dampen sentiment. With APPEC ahead, information flow is expected to become increasingly scarce, with more activity likely to be concluded under the radar. Across the Pacific, TMX freight has also picked up on the back of prompt tenders and a tight tonnage list, with earnings now competitive with those in Indo. We close the week steady, assessing Indo/Up at 80kt × WS205.

West Africa

The WAF VLCC market started the week relatively quietly, although limited prompt tonnage and the need to attract ballasters from the East provided underlying support. As the week progressed, outstanding cargoes and activity under the radar gradually tightened the list, while strength across the Atlantic added further upward pressure. Owners remain confident, and freight continues to face upward pressure, resulting in a strongly firm market. Attention is now on next week to see if momentum can continue.

WAF has firmed on the back of sustained split-VLCC stem activity, which has provided the principal driver of recent Suezmax demand and absorbed a meaningful portion of the workable tonnage list. Additional activity from Brazil has further tightened the regional balance, leaving availability increasingly date-sensitive. Although limited enquiry remains outstanding, owners retain the initiative and are expected to resist last-done levels while testing the market higher.

Mediterranean

The Mediterranean Suezmax market opened slowly, with limited early enquiry allowing the tonnage list to retain some length. However, increased WAF activity subsequently drew units away from the region, establishing a firmer floor as prompt and suitably positioned tonnage tightened. Owners responded by raising their expectations, with rates recording measured gains as charterers moved to secure coverage against a less accommodating forward list.

For the Med Afras, this week was all about monitoring wider proceedings and finding a floor. As for the value being lost Monday through to Wednesday (WS245 to WS220 levels), the signals elsewhere were suggesting this wasn’t to be an enduring negative rut. Diving a little deeper, once the lists had been cleared of excess tonnage and a more steady fixing pattern emerged in the States, owners began to be heartened, and indeed this WS220 was the bottom for good voyages, with premiums being applied for shorter routes thereafter. Furthermore, where surrounding larger sectors have been showing positive volatility, combined with TD25 picking up and front-month paper, owners started to show resilience, especially where they now face a rise in bunker costs. At the close, WS230 is on subs for a good XMed run, and owners hope for more to come next week.

US Gulf/Latin America

The States VLCC market started the week relatively steady before activity picked up significantly as the week progressed. A tightening tonnage list and resistance from owners helped push freight higher, with several fixtures reported above previous levels. The USG and Brazil became the main drivers of activity towards the end of the week, with several vessels reported on subs at firmer levels. Owners remain in a strong position for now, with the market looking to see whether the current flow of enquiry can maintain the upward momentum into next week.

North Sea

A pretty inactive week overall, with the lack of ballasters holding things in check locally. Levels still sit in the low WS200s, with little expected to change next week. Monday’s Labour Day will slow some trading and give owners little alternative to look towards. Having said this, the Med is looking improved, and West Cont positions may be attracted by WMed business. Flat for the time being.

Crude Tanker Spot Rates (WS)

Clean Products

East

Post the public holiday in the UK on Monday, the week never felt like it gained traction on the LRs. Limited stems were seen on both sizes, with slight corrections seen on those that did make it to market. The lists, however, both remain tight, and with North Asia still very busy, the number of ships making the ballast to the AG/WCI are lacking. Although we have APPEC commencing over the weekend, we are fundamentally short of the next window of stems, and therefore expect next week to be busy, but, as we have seen on weeks with big shipping events, finding out what’s actually being done might prove tricky, and some may get caught out.

A quiet start to the week quickly gave way to firmer sentiment as a healthy injection of cargoes tightened an already slim tonnage list. TC17 initially showed a wide spread, with Sikka fixed at both 35 × WS337.5 and 35 × WS350, before Sohar and Duqm later achieved 35 × WS360, helping support Sikka around the 35 × WS350 mark. Fresh lists remain notably tight for the next 10 days, while charterers have begun pushing into mid-month dates and owners are increasingly confident of maintaining or improving current levels. Strong enquiry, awarded India tenders for 18-28 dates, and a firming SEA market should continue to support the region, with further upside potential as forward tonnage availability tightens. As of today, TC17 is on subs at WS385.

UK Continent

UKC MRs experienced a steady stream of numerous asset classes arriving on laden vessels into the arena, and a trickle of ULSD leaving the region, the over-tonnage dynamic is not changing. Options are to go short, but this is only compounding and delaying any improvement in rates; take what is on offer, laden or ballast towards the USG. The only increasing seasonal issue with ballasting to Houston is the deteriorating weather conditions. We don’t expect to see much change ahead in rates until something eases the dynamic out of its current status.

Once again the handies have been at the mercy of the MRs, which has resulted in levels softening a touch to 30 × WS175 for XUKC. UKC/Med still remains an undesirable run, which has resulted in 30 × WS185. MRs a driving factor here for TC23.

Med

For the Med MRs, with numerous vessels inbound from the UKC and coming in from other regions laden, on top of the ships which are sitting prompt, rates are highly unlikely to move far in the short term. There are grade-sensitive units available, and there are boats willing both east and west, so there don’t seem to be any issues with covering at last done or less.

A repeated week for Med handies comes to a close, with rates stable at the 30 × WS165 mark. Any business occurring seemed to go direct, keeping market speculation minimal and helping entrench last done levels. That said, a replacement stem out of the WMed, where suitable candidates are more sparse, has seen rates jump to WS175 levels; more time is needed to see if this is indicative of a push on rates.

Owners will be hopeful that as the summer season winds down, business picks up and this market starts to see regular activity again. However, in the short term, there is a surplus of larger MR units that are capping rates off, and as long as this remains a factor, owners will struggle to challenge rates.

Clean Tanker Spot Rates (WS)

Dirty Products

Handy

Following the Bank Holiday weekend in the UK, the week began as expected on a quiet note, with downward pressure anticipated and rates called around WS315-320. As the week progressed, the market struggled to gain momentum, with limited enquiry doing little to chip away at the list, leaving rates testing lower around WS312.5-317.5. By week’s end, with little activity and with further vessels expected to open in the coming weeks, sentiment continued to soften, with levels ending the week around WS310-315.

The week started with a well-populated list, aided by some CPP owners willing to dirty up. Attention focused on how quickly enquiry would emerge, with rates initially called around WS335-340. As the week progressed, opening tonnage continued to outpace demand, placing further pressure on owners and pushing expectations down to WS325-330. By week’s end, recent fixture reports continued to point lower, and with supply remaining healthy, the market looks set to remain under pressure heading into next week, with rates expected to test below WS317.5-322.5. Owners will be hoping for a stronger start next week to halt the slide.

MR

The week opened with a handful of workable units available, both naturally positioned and from the WMed, though a fresh market test was needed, with expectations around WS250-255. As the week developed, MR saw little love; heading into the close, the market was still awaiting a well-publicised test, with underlying sentiment softening and expectations easing towards WS240-245.

The week began with workable MR availability across the region, though charterer appetite remained limited, leaving expectations around WS255-260. As the week progressed, the list became increasingly skewed towards early-date WMed units, creating a slightly tighter appearance but doing little to alter the overall market dynamic. Overall, the sector had once again failed to produce a well-publicised benchmark, with sentiment softening and expectations easing towards WS250-255.

Panamax

At the start of the week, a handful of vessels split between NWE and the Med, with sentiment broadly steady at WS185-195. As the week developed, additional tonnage emerged from multiple owners expecting to open over the coming weeks, while softer Aframax Med-TA levels weighed on sentiment. With availability building and little fresh demand surfacing, expectations softened through the week towards WS160-170.

The week started with rates continuing to edge lower, although wider market uncertainty remained a talking point, with expectations around WS450-455. As the week progressed, Panamaxes managed to show some resilience, taking support from the Aframax sector. By week’s end, sentiment had stabilised, with levels holding around WS457.5-462.5.

Dirty Product Tanker Spot Rates (WS)

Rates & Bunkers

Clean and Dirty Tanker Spot Market Developments – Spot WS and $/day TCE (a)

wk on wk changeSep 3rdAug 27thLast Month*FFA Q3
TD3C VLCC AG-China WS54677623476521
TD3C VLCC AG-China TCE $/day59,000737,500678,500505,750549,250
TD20 Suezmax WAF-UKC WS-23215238172246
TD20 Suezmax WAF-UKC TCE $/day-16,000101,750117,75077,750113,750
TD25 Aframax USG-UKC WS33234202307307
TD25 Aframax USG-UKC TCE $/day11,00054,00043,00084,25074,500
TC1 LR2 AG-Japan WS26566540523 
TC1 LR2 AG-Japan TCE $/day6,500162,000155,500148,750
TC18 MR USG-Brazil WS36298262225279
TC18 MR USG-Brazil TCE $/day6,00036,00030,00023,50029,750
TC5 LR1 AG-Japan WS43622579542510
TC5 LR1 AG-Japan TCE $/day8,750129,250120,500110,50099,000
TC7 MR Singapore-EC Aus WS23338315260287
TC7 MR Singapore-EC Aus TCE $/day2,50037,50035,00025,00027,750

(a) based on round voyage economics at ‘market’ speed, eco, non-scrubber basis

Bunker Prices ($/tonne)

wk on wk changeSep 3rdAug 27thLast Month*
Rotterdam VLSFO  +34694661632
Fujairah VLSFO  +62854792775
Singapore VLSFO  +50820770817
Rotterdam LSMGO  +14613461,2001,119

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