An OPEC production cut is “far from certain” despite an agreement reached by members of the cartel in Algeria yesterday.
European analysts identified a number of likely scenarios following the meeting, singling out an opening for investors in the LPG market and suggesting tanker owners may not be cursing the decision.
Light for LPG owners
“If the OPEC members actually do honour the reported agreement to cut production by 750kbpd, we finally have a piece of positive news for the LPG shipping companies,” said Ola Ekern Rugsveen of Carnegie.
He noted a higher oil price would boost US shale production and raise the price of naphtha, a substitute for LPG in petrochemical production - which would also aid the freight market.
“We would buy Avance Gas and BW LPG from the get-go tomorrow morning,” he wrote in a report last night.
Both shipowners saw their shares tick up modestly this morning in Oslo.
Tankers to suffer? Not necessarily
Analysts at Fearnley Securities see little impact for tankers from OPEC’s decision to limit output.
“While lower output at first glance could be negative, we note that it is mostly affecting MEG volumes, which have gained some momentum over Atlantic volumes over the summer,” analysts Jonathan Staubo, Peder Nicolai Jarlsby and Espen Landmark Fjermestad said.
“However, as the proposed cuts allow for a recovery of output in Nigeria and Libya, we could now see the Atlantic regaining some momentum which is positive from a ton-mile perspective”.
"Far from certain"
Frode Morkedal of Clarksons Platou Securities explained OPEC had in principle agreed to cut production from 33.5 million barrels a day to between 32.5 million and 33 million, with Saudi Arabia tipped to take the bulk of the reduction.
Venezuela, Angola and others were unlikely to turn down the taps, he said.
In a report this morning, he said “an actual implementation of OPEC cut is far from a certain thing”.
"We view the planned cut in OPEC production, if implemented, to be negative for tankers,” Morkedal wrote.
“However, the magnitude of the impact has in our view been mitigated by the lifting of the ban on US crude exports, which depending price spreads, could result in seaborne volumes from non-OPEC increasing as a result of OPEC cuts," he said.
"Furthermore, longer trading distances may also counteract the negative effects of OPEC cuts.”
Can kicked again
Arctic Securities described the Algeria agreement as "vague" and could impact tankers in "several ways".
Analyst Andreas Wikborg noted the volume and distribution of reductions will be decided at the next meeting in November, “putting yet another dent in the can they’ve been kicking down the road”.
While a reduction in crude on the water was negative for public tanker owners, Wikborg argued the overall risk on sentiment meant “the high-beta shipping space will be a beneficiary of rising crude prices despite the underlying fundamentals for each sector".
He added: “Almost all tanker company stocks were in the green yesterday, supporting our thoughts above, but also supported by a 21% increase in VLCC rates to around $18,000 per day.
“Winter is coming, and chances are it’s bringing VLCC rates along.”
