The dynamics of global oil trade and demand for crude tankers

Part 2

The dynamics of the global oil trade and demand for crude tankers

The dynamics of the global oil trade

There are two key driving forces of oil shipment demand today, which has been a trend for the past five years: a decrease in oil shipments to the United States and growth in China. In 2010, the largest importers of oil in the world were the United States, China, Japan, and India. The United States imported 9.2 million barrels a day (21% of the total), while China, the second largest importer, imported 4.7 million (11% of the total), according to data from the U.S. Energy Information Administration (EIA).

World Crude Imports 2013-07-17Enlarge Graph

The United States leaves while China picks up

The United States has historically been the largest importer of oil. But since horizontal drilling and hydraulic fracturing technologies have made it possible for energy companies to extract oil from areas where oil extraction was initially considered impossible and uneconomical, domestic production started to take off after successful trials, beginning the United States’ journey to becoming an energy-independent country.

As OPEC (the Organization of Petroleum Exporting Countries—which are primarily situated in Africa and the Middle East) and oil shipment companies continued to lose business from the West, they found a savior in the East: China. Driven by rapid growth, spurred by government stimulus in 2009 and a population that strives to work and earn more to have higher living standards, demand for oil has grown rapidly in double digits. Imports, as a result, grew ~10% from 2008 to 2012.

Annual Oil Import Growth 2013-09-06Enlarge Graph

China’s growth isn’t enough

While China stepped up its oil import, it wasn’t enough to fill falling U.S. imports. With the exception of 2010, when the United States imported more oil as its economy recovered, the remaining three years have consistently led to lower imports than China can soak up. The EIA estimates that the country will become the largest producer of crude oil within the next few years, knocking countries such as Russia and Saudi Arabia off the top chart. China’s golden age of investment-led economic growth is now history, and as the country opens up to more consumption, how may oil consumption be affected? With tanker stocks falling more than 80% from 2008, and China now a larger player in the world’s oil shipment market, will the downtrend reverse or continue? The following indicators will help us understand the demand prospects of companies such as Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), Nordic American Tanker Ltd. (NAT), and, to an extent, Tsakos Energy Navigation Ltd. (TNP) and the Guggenheim Shipping ETF (SEA) over the next few months.

The Realist Discussions