April was a disappointing month for the crude oil shipping industry with a dramatic fall in US crude oil exports which caused tonne mile demand to fall disproportionally.
This was because exports to Asia dropped to 3.7 million tonnes from 5.5 million tonnes in March.
Due to the much shorter sailing distances, the increase in exports to North and Central America meant demand for shipping fell by more than volumes would suggest. Volumes fell by 6% from March to April, whereas tonne mile demand dropped by 25.1%.
Tonne mile demand, which had been above 85 billion tonne miles in the previous two months, fell to its lowest level since August 2018, namely 64 billion tonne miles.
In the first four months of 2019, exports to Asia generated 12.2 times as many tonne miles as those to North and Central America, despite exporting only 2.7 times as much crude oil to Asia than to North and Central America. This is because in this period a tonne of crude oil generated on average 12,097 tonne miles when it was sent to Asia and only 2,674 tonne miles when it sailed to South or Central America.
“The longer the sailing distance, the more valuable the trade is to the shipping industry with demand for shipping measured in tonne mile demand rather than just tonnes.
Whether crude oil is sold to South Korea of Canada makes little difference to US exporters, but a huge difference to the shipping industry,” says Peter Sand, BIMCO’s Chief Shipping Analyst.
This was the first month on month decline of US crude oil exports since August 2018. After exporting over 10 million tonnes of crude oil in both February and March, April saw a disappointing 8.8 million tonnes exported.
In August 2018, US crude oil exports dropped as Chinese buyers completely stopped their imports in response to the trade war.
Since November, Chinese buyers have slowly resumed their purchases of US crude oil, albeit at much lower levels than at the start of 2018. In the first four months of 2018, the equivalent of 17 VLCC loads (300,000 DWT) of crude oil were sent from the US to China, in the first four months of 2019 that number has fallen to just 4.
In January, a slump in tonne mile demand was especially driven by a dramatic reduction in exports to South Korea with political sanctions and trade war tensions playing out on the trade lanes. US exports went from 2.25 million tonnes in December to 0.86 million tonnes in January.
The future of this trade depends on the status of the relationship between the US and China. Trade talks are now back on the table with the two leaders set to meet at the G20 meeting taking place in Japan between 28 and 29 June. A breakdown of talks in May led to increased tariffs on Chinese exports to the US and US exports to China.
“The Chinese import of US crude oil has been hit hard even though there are no tariffs. In the first four months of 2018, 22.4% of US crude oil exports were sent to China. This number fell to just 3% in the first four months of 2019.
US crude oil exports to China could be an important part of any trade deal the countries reach given President Trump’s focus on improving the trade balance between the two nations. Perhaps the G20 will provide new answers,” says Peter Sand.
Despite the drop of exports in April, US crude oil exports in the first four months of 2019 are 69.3% higher than they were in the first four months of 2018, with tonne miles up 90.2%, at 303.3 billion tonnes.
Despite increasing its exports, the US remains a net importer of crude oil. In the first four months of 2019 it imported 55.7 million tonnes, meaning that net imports of crude oil came to 16.9 million tonnes. This is however down from the 46.9 million tonnes of net imports in the same period of 2018, with imports falling by 14 million tonnes and exports rising by 15.9 million tonnes.
“Since the crude oil export ban was lifted at the end of 2015, US crude oil exports have grown massively, and in 2018 accounted for around 7% of total tonne miles generated by crude oil transport, with this figure expected to rise in 2019,” says Peter Sand.
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