World oil production
Crude oil production has gradually fallen since the beginning of 2016. According to a report by OPEC (Organization of the Petroleum Exporting Countries), the world’s oil supply fell 0.14 MMbpd (million barrels per day) and stood at 95.7 MMbpd in August 2016 compared to the previous month. The decline in production is more from the non-OPEC side.
Non-OPEC production in August fell 0.11 MMbpd. OPEC production fell 23 mbpd (thousand barrels per day) in August.
Oil production and the crude oil tanker industry
When the oil supply falls, there’s a negative impact on crude oil tanker rates because the demand for spot cargoes diminishes. So a higher oil supply is usually positive for the tanker industry, and vice versa. A lower oil supply has a negative impact on companies such as Frontline (FRO), Nordic American Tankers (NAT), Teekay Tankers (TNK), Euronav (EURN), DHT Holdings (DHT), and Tsakos Energy Navigation (TNP).
Oil production forecasts
According to the EIA (U.S. Energy Information Administration), the total world’s oil production is estimated to fall 0.38 MMbpd in 2016. In 2017, the production is expected to rise. This could benefit the crude oil tanker market.
US Gulf refinery margins for WTI (West Texas Intermediate) crude oil rose more than $2 in August 2016 compared to the previous month’s level. The margins averaged around $8 in August, according to OPEC’s monthly report. In the same month, Brent crude oil refinery margins in northwest Europe reported a rise of ~$1 compared to the previous month. It averaged $4.70 per barrel, according to OPEC’s monthly report. Refinery margins in Asia have also shown a slight recovery.
Refinery margins and crude oil tankers
When refining margins improve, refineries are encouraged to increase their utilization and import more crude oil, and vice versa. Higher crude oil (DBO) imports mean higher tanker demand. The recent rise in refinery margins is a positive for the tanker industry.