US crude oil export could change the tanker market

If US President Barack Obama decides to lift the ban on crude oil exports, the move could potentially bring major changes to the tanker market, industry observers say.
Photo: DHT
Photo: DHT

An increasing number of factors seem to indicate that the US administration, headed by President Obama, is getting ready to lift the country's historical ban on crude oil exports. This could potentially have a huge impact on the tanker market, according to industry observers.

The latest signals from the US government seem indicate that the Obama administration is moving closer to a repeal of the longstanding ban against exporting crude oil from the United States. The industry has - especially in light of the discovery and extraction of shale oil and gas - criticized the fact that US energy companies are still not allowed to sell crude oil out of the country.

But according to the Financial Times, Obama senior advisor John Podesta said at a conference at Columbia University yesterday that the government "is actively looking into challenges related to the shale oil boom."

Crimea crisis has changed the scenario

Even though this does not represent a clear-cut yes to exports, several sources tell the Financial Times that the statement clearly indicates that the US government is now, to a certain extent, leaning toward lifting the ban.

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Chief Economist at the Danish Shipowners' Association, Christopher Rex, says that - to some degree - a repeal of the United States' historical ban on crude oil exports could bring major changes to the tank market.

"This could potentially have a great impact on the tank market. But we don't know yet whether this is going to happen or how things turn out. If the US becomes able to export crude oil, the crucial thing from a shipping perspective is who the buyer will be. The crisis in Crimea has changed the geopolitical scenario, so that Europe and the US will have to think more about their supply security than they have in the past. Another crucial factor will be whether this crude is shipped to the new, more modern refineries in Asia, and then back to Europe on product tankers, as that would be a best-case scenario for the shipping industry," he tells ShippingWatch.

Possible benefit for product tank

At first glance, the major crude oil tankers, VLCC, stand to benefit the most from a lift of the ban, though Christopher Rex says that the booming product tank market will not necessarily suffer from a decision to repeal the US ban on crude oil exports. The need to transport refined products seems to be intact, and the segment stands to benefit if it becomes necessary to sail products from Asia to Europe, he says.

Where to?

Peter Sand, Chief Analyst at Bimco, has reservations in relation to a possible repeal of the ban and the potential consequences for the tanker market.

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"First of all, this is not something we expect to happen tomorrow. But if the United States starts exporting crude oil, the logical question to ask is where the oil will be shipped to. Brazil may be the most obvious guess. Europe doesn't need that much oil from the US, but if that happens, it would be a negative development, if it puts pressure on oil out of the Middle East."

"The way I see it, crude oil from the US is more of a theoretical idea. It will not make sense financially to ship crude oil out of the country, so I mainly envision an export of refined products from the United States, and that's already happening. The US has plenty of capacity in its refineries across the country, around 189 million barrels per day, but the core of the matter is the quality of locally produced crude versus imported crude, and the country itself uses 14-15 million barrels per day," says Peter Sand:

"There's a reason that the Middle East, in order to get a bigger part of the supply chain, has started building refineries, no longer settling for just exporting crude oil. If we get to the point where the US starts to export crude, it likely won't just impact crude oil carriers if the volumes are distances are sufficiently big. Product tank carriers practically just have to hope that it remains attractive for South America and Africa, in particular, to pull products out of the US, and it will, at least as long as the Americans can offer products that are cheaper than in Europe."

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