Rough Seas Ahead

Unfortunately 2012 will be a rough year again for shipping companies.

There is still too much tonnage coming on stream, and not enough being scrapped.

As previously stated, expect to see more VSA's (vessel sharing agreements), and
IF the carriers are smart they won't dramatically increase tonnage. I think Maersk
has had a change of heart with swearing they will maintain market share at all
costs, but who knows. They tend to flip-flop quite a lot.

And the price of oil will weigh heavily on the profits of companies. It's not easy
to get an increase in bunker surcharges when there is too much capacity.

The price of oil is coming down slightly, but I don't think we will see a big drop.
I continue to predict oil will be around $100.00 a barrel for 2012.

Will Japan increase oil reserves?

Oil prices went up today. They are saying it's become militants attacked an oil pipeline in Nigeria.

I wonder if it's not because countries are now starting to stockpile oil.

China is increasing their oil reserves from 1 months supply to 3.

Now Japan is following suit.

This from Lloyd's List

JAPAN has struck a deal with an oil company in the United Arab Emirates that would see more crude oil transported to the Far East to fill an onshore reserve base.

And in May 2009, MoneyNews.com reported

Japan's business daily Nihon Keizai reported that Japan may increase its national oil reserves to the equivalent of about four months' worth of domestic consumption, or a 40 percent increase over current levels.

Government officials denied the Nikkei report.

Overall, the price should be going down. Demand is going down according to

June 29 (Bloomberg) -- The International Energy Agency, an adviser to oil-consuming nations, cut five-year forecasts for global crude demand because of the economic slump, predicting consumption won’t regain last year’s levels until 2012.

click here for article from Bloomberg

So, bunker fuel prices should be coming down too. Once all the countries are finished increasing their oil reserve stocks.

At least the good thing about this for the tanker operators is this has increased the demand for tankers. But that will be short lived.

Surplus of oil products - ships used for storage

Oil has been going up due to speculation, (as mentioned in my blog of June 14, click here) and also due to the stockpiling by China.

China's stockpile increases oil prices

Since crude oil and other commodity prices plunged last year - oil tumbled from $147 last July to nearly $33 in December - China has been rushing to build up stockpiles at bargain prices, economists say. That motive, more than a revival in actual industrial demand, has driven its recent import boom of oil, copper and other metals.

Now we are seeing such a surplus of refined oil products, that..

AN INCREASING number of very large crude carrier newbuildings are being hired to store clean petroleum products as an alternative to land-based storage.

VLCCs and suezmax tankers are being chartered straight from the delivery yard before ever taking a crude cargo, brokers have reported

Even more interesting is this comment.

“

Oil demand has been so flabby in recent months, the refiners have already run the crude and are stuck with the product,” said SSY research director Mark Jenkins.

Assuming this is true, my price target of 55.00 for oil by August may not be too far off the mark. Eventually that will lead to lower bunker fuel prices.

click here for article from Lloyd's List "VLCCS NEWBUILDS USED FOR PRODUCT TANKER STORAGE"

China's stockpile boosts oil prices

This is the headline of an article in my local paper. It is an Associated Press article, written by Elaine Kurtenbach, byline is Zhoushan, China.

The funny thing is I cannot find this on the web, neither in Kansas.com (which is the link to the paper), nor in Associated Press, nor when I google the writer's name.

So, I am retyping it here. Trust me, this came from the printed version of The Wichita Eagle, dated June 17, 2009.

China's stockpile boosts oil prices

By Elaine Kurtenbach
Associated Press

Zhoushan, China - One reason behind the rebound in world oil prices lies here on China's eastern seaboard, where tidy rows of immense, squat oil tanks tucked away on an island south of Shanghai, have been filled to guard China's energy security.

Patrolled by military personnel, these tanks in Zhoushan are one of four locations where China keeps its national strategic reserves.

Since crude oil and other commodity prices plunged last year - oil tumbled from $147 last July to nearly $33 in December - China has been rushing to build up stockpiles at bargain prices, economists say. That motive, more than a revival in actual industrial demand, has driven its recent import boom of oil, copper and other metals.

The surge in Chinese demand, along with rising hopes for a global economic recovery, has helped lift the price of oil, which is now trading at around $70 a barrel, and other commodities.

The question is how high prices will go before Chinese buyers - and other investors that have flooded into commodities from other markets - decided to cut back, says Simon Wardell, and oil analyst at IHS Global Insight based in London.

"This market is persisting and it may well persist for a few more months yet, simply on the basis of increased optimism," he said.

China is obsessed with making sure it has enough energy and materials to feed its economy. Authorities plan to build more oil reserve tanks while lining up diverse supply sources, from Brazil to Nigeria and Siberia.

Earlier this month, energy chief Zhang Guobao announced government approval of a second phase of strategic oil reserves that will hold 26.8 million cubic meters of crud oil - bigger than the current reserves of 16.4 million cubic meters.

Ultimately, China aims to have about three months of supply in national reserves. It now has about a month's worth.

Perhaps that is one reason China is importing so much iron ore. Not to build ships, but to build oil storage tanks.

I also suspect China thinks spending their U.S. Dollars to buy oil is a good investment.

I don't know how long it will take China to get up to 3 months supply of oil, but you can be sure once they do the price of oil will go down.

Of course, if their present storage tanks are full, they might quit buying for a while. This would be a smart idea anyway, as it would cause the price of oil to fall back down.

Let's play the guessing game.

I guess oil prices will drop back down to around $55 a barrel by October, and if China does stop buying in the next month, it could drop down to that level by August.

What's your guess?

How many oil tankers are storing oil?

Back in January 2009 there were reports of oil tankers being chartered just to store oil. Speculators were guessing the price would go up, and it has. Probably more so due to all this speculation than actual demand.

Oil prices are rising way ahead of reality, way ahead of fundamentals,” said Eugen Weinberg, a senior commodity analyst at Commerzbank AG in Frankfurt. “It would be more reasonable for prices to drop a little and correct to $50 or below.”

And, how many ships are storing oil? I don't know how many, but it's gotta be a bunch.

There’s enough unsold crude stored in offshore tankers to supply the U.S. for a week,

click here for complete article from Bloomberg