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Last updateΔευ, 01 Ιουλ 2024 7am

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The global oil market is facing a confluence of factors

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The global oil market is facing a confluence of factors that could hinder supply growth and push prices higher. Growing fears of another Middle East conflict, coupled with tight supply from OPEC+ and a moderate demand outlook in key consumers like China, threaten to offset any production increases from non-OPEC producers. Adding fuel to the fire, Iran has threatened to close the Strait of Hormuz, a critical chokepoint for global oil transportation. This vital passage handles roughly 20 million barrels per day of crude oil and refined fuels. The Middle East itself accounts for nearly 40% of global oil exports, highlighting the potential impact of a disruption in the region. While Asian refiners are exploring alternative sources in case of an escalation, China's independent refiners remain reliant on Iranian crude, one of their preferred feedstocks.

Meanwhile, ongoing tensions stemming from the Israel-Iran conflict and safety concerns in the Red Sea are driving up logistical costs for transporting Middle Eastern crude. Insurance fees and security-related expenses have skyrocketed, significantly increasing the overall delivery cost. War risk premiums in the Red Sea have surged to between 0.5% and 1.0% of a ship's hull and machinery value, depending on size and age. This marks a stark contrast to the negligible premiums currently seen in the Persian Gulf, where costs are also expected to rise. This trend is already impacting buying decisions. South Korea, Asia's third-largest crude importer, has reduced imports of Saudi Arabian crude in favor of US cargoes for the second consecutive month. This shift is driven by more attractive economics for American barrels due to the rising insurance costs associated with transporting oil from the Persian Gulf. Data from Korea National Oil Corp. shows that South Korea imported 28.06 million barrels from Saudi Arabia in March, a 12.3% decrease year-on-year. Conversely, US imports, primarily light sweet grades like WTI Midland, jumped 17.6% year-on-year to 12.26 million barrels. The combined effect of these factors paints a picture of uncertainty for the oil market. The potential for supply disruptions in the Middle East, coupled with limited production growth elsewhere and ongoing geopolitical tensions, could put upward pressure on oil prices.

China is anticipated to experience subdued steel demand throughout the traditionally robust second quarter, despite reaching an almost eight-year high in net exports of semi-finished and finished steel in March. This surge in exports occurred alongside a decrease in production compared to the previous year. While steel production is expected to slightly increase in the second quarter compared to the first, it may still fall short of the levels seen a year ago. This trend is likely to exert pressure on iron ore prices, according to insiders. In March, China's net exports of semi-finished and finished steel saw a significant year-on-year increase of 29.8%, reaching 9.447 million metric tons. During the first quarter of 2024, these exports rose by 35%, amounting to 23.712 million metric tons. Conversely, China's crude steel production experienced a 7.8% decline year-on-year in March, totalling 88.27 million metric tons. This brought the total steel production for the first quarter to 256.55 million metric tons, marking a 1.9% decrease compared to the previous year. In the meantime, Chinese iron ore port inventories have been in an uptrend so far in 2024, reaching 145.16 million mt as of April 19, rising 21.9% from the end of 2023 and 12% on the year, reaching the highest point since April 2022. The Baltic Average 5TC routes has dropped around 23% during the past week and currently is standing to just above USD 18K/day.

Sale and Purchase

Dry:

Although the BCI has seen a significant reduction (down 23% week-over-week) during the past week, the S&P activity on Capesize and Newcastlemax sectors has increased, with almost half of the sales belonging to these sectors. The Newcastlemax “Newmax” - 203K/2012 Bohai and the “Cape Kallia” - 203K/2012 Bohai were sold for USD 38 mills each to clients of Pioneer bulk. Clients of Hayfin acquired the Electronic M/E Capesize “Urja” - 181K/2013 Tsuneishi Cebu for high USD 30s mills, while clients of Costamare acquired the “Lowlands Prosperity” - 180K/2012 HHIC for USD 30.5-31 mills. On the Kamsarmax sector, the “Lowlands Sage” - 82K/2021 Tsuneishi was sold for excess USD 39 mills to Japanese buyers basis TC attached to Cargill at around USD 16K/day till Q1 2025. Turkish buyers acquired the Ultramax “Ultra Rocanville”- 62K/2012 Oshima for USD 23 mills. On the Supramax sector, the “Gillingham” - 58K/2010 Yangzhou Dayang changed hands for USD 13.8 mills. Last but not least, the Handysize “Taikoo Brilliance” - 38K/2015 Imabari found new owners for high USD 21 mills.

Wet:

On the VLCC sector, the “Hengli Dalian Hlzg2023-T300K-1” - 306K/2025 Hengli and the “Hengli Dalian Hlzg2023-T300K-2”- 306K/2025 Hengli were sold enbloc for USD 244 mills to Greek buyers. Greeks are also behind the purchase of Aframax “Stirling” - 113K/2021 Cosco Zhoushan, which changed hands for low USD 70s mills. The CPP LR1 “Alpine Persefone” - 74K/2008 Sungdong was also sold to Greek buyers for low/mid USD 29 mills. On the MR2 sector, the “Seaways Niagara” - 51K/2008 STX and the “Seaways Nantucket” - 51K/2008 STX found new owners for USD 25 mills each. The StSt MR1 “Gold Trader III” - 33K/2023 Nantong Xiangyu and the StSt “Gold Trader II” - 33K/2022 Nantong Xiangyu were sold enbloc for USD 57 mills each to SFL corporation against a TC and another being placed into the Stolt pool. Understand the TC is 8 years +1+1+1 at region USD 26K/day. Finally, on the chemical sector, clients of Hansa Shipping acquired the StSt “TRF Kobe” - 20K/2016 Kitanihon and the StSt “TRF Kristiansand” - 20K/2016 Kitanihon for USD 32.5 mills each.

Xclusiv Shipbrokers Inc.

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