More crude production from Norway’s giant Johan Sverdrup field is expected to stay within Europe, a development that bodes ill for the VLCC market but could support suezmax and aframax demand.
Analysts predict long-haul shipments to Asia would be curbed by weak arbitrage economics and lower crude imports of China for the near term.
“VLCC tonne-mile demand could take a hit with the onset of Chinese state refinery maintenance work looming,” Vortexa freight analyst Ioannis Papadimitriou said in a note.
“Johan Sverdrup might then find demand closer to home, supporting short-haul routes, providing solace for aframax and suezmax vessel classes.”
Arbitrage flows
Low crude output of Opec+ tends to support Middle Eastern crude prices, resulting in more arbitrage flows from the Atlantic basin to Asia on VLCCs.
But the premium of Brent benchmark crude to Dubai crude has stayed above $2 per barrel in recent weeks, despite Middle Eastern producers within the Opec extending their output cuts into next month.
“Financial investors have been bidding up the price of Brent crude, because of its greater liquidity in the financial markets, as they take a position on rising crude oil prices,” Braemar ACM Shipbroking said in a note.
“While surplus crude from the Atlantic basin is likely to continue to find its way into Asia even now, arbitrage upsides are likely to be less frequent.”
The prices of many crude grades produced in the Atlantic basis — including Johan Sverdrup — are linked to the Brent benchmark.
Trend reversal
Papadimitriou said fewer VLCC shipments of Johan Sverdrup crude to Asia would be a reversal of recent trends.
Vortexa data showed 15 VLCCs lifted from the third-largest oil field on the Norwegian continental shelf last month — a record high.
About 90% of the cargoes were destined to China, with the remainder headed to South Korea.
Data from Kpler — another energy intelligence provider — showed 10m of the 13m barrels of Johan Sverdrup exports in February were on VLCCs.
In September 2020, only 17.9% of the shipments were on VLCCs.
Equinor-operated Johan Sverdrup has been ramping up its output since beginning exports in October 2019.
Norway’s state-owned energy firm expects the field’s production to reach 535,000 barrels per day (bpd) by the middle of this year — 100,000 bpd more than its initial level.
Citing loading schedules, Papadimitriou said Johan Sverdrup loadings are set to rise further from April onwards.
“[This is] a welcome sign for tanker demand going forward,” Papadimitriou said.
