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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Major Oil Indicator Reaches Lowest Level Ever Recorded

The oil market is still in a state of uncertainty — with a lot of major indicators (including crude prices) in rapid flux.

And news this week shows that the turbulence is far from over. With one major crude indicator hitting an all-time low — after a stunning drop so far in 2016.

That’s shipping rates for crude. With the price for sending cargos from the key bunkering port of Rotterdam, Netherlands to Singapore registering the lowest level seen in 10 years.

Platts reported yesterday that shipping rates for Very Large Crude Carriers (VLCCs) traveling the Rotterdam-Singapore route dropped as low as $2.25 million as of Friday. Representing the lowest price ever seen for VLCC fixtures since these analysts began assessing the route in January 2006.

That price was down over $200,000 from the last assessment. And represents a stunning 65 percent fall from this past January — when prices for VLCC charters were running as high as $6.4 million.

As with many things in the crude market, the culprit appears to be overcapacity. With Platts quoting industry sources as saying that 24 new VLCCs have been put into service so far in 2016 — with another 13 new vessels to be delivered by year-end, and a further 39 ships to come in 2017. Related: Why Statoil’s $25 North Sea Break-Even Claim Is A One Off

That’s an incredible amount of new crude shipping capacity. Much of it commissioned during the oil heyday of the past few years, when tight supply drove shipping prices up and caused industry players to expand their fleets.

It appears however, that shippers over-reached — and now the VLCC market is flooded. Bad news for shipping companies (coming conspicuously during the same week the world’s 7th largest container shipper, South Korea’s Hanjin, filed for bankruptcy), but very good news for crude buyers and sellers globally.

With shipping prices low, margins for waterborne crude sellers are rising. In fact, the improved profitability has been opening entirely new routes for crude sales — with the first-ever cargo of Alaska North Slope oil setting sail for China last month.

Watch for improved profits from oil exporters, as well as cost savings for end users — possibly in some unexpected parts of the world.

Here’s to a rare opportunity.

By Dave Forest

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