Gibson Shipbrokers says product tankers are likely to benefit from a drop in Californian crude demand.
But long-term, the state looks set to be a test case for the transition away from oil in advanced economies, the shipbroker believes.
The London shop said thanks to local environmental laws, around 75% of California’s oil demand has to be met from overseas barrels due to a lack of interstate pipelines and regulations limiting rail imports.
After a Covid-related drop in crude imports, there has been a gradual recovery in volumes with this year averaging 863,000 barrels per day.
There is a preference for medium-sour crude shipped by state refiners, with Saudi Arabia, Ecuador, Iraq and Brazil the main load countries, mostly on suezmaxes and aframaxes.
“Meanwhile, over a longer horizon, California’s ageing refineries and strict regulatory framework for the sector may put a dampener on longer-term crude demand,” Gibsons said.
“This will make the state more dependent on clean product imports to meet demand if refinery units close. The region is already net-short in gasoline and this may give rise to higher transpacific MR demand for vessels loading in the Far East, particularly South Korea,” the company added.
Some of these facilities are also likely to see conversion to biofuel import terminals, which could benefit the specialised tanker market or product carriers, with a diverse source of potential suppliers in both Asia and Latin America, the shop argues.
But over the longer term, the outlook for the state’s oil demand is generally bearish, the broker argues.
Recent data from the California Energy Commission shows the state hit its 2025 electric vehicle sales target two years ahead of schedule and demand remains very firm.
“This is likely to impact local gasoline demand which will start to create a challenging demand outlook for state refiners. On top of this, state-wide energy transition targets are typically more ambitious than other states and the political mood is unlikely to shift in favour of hydrocarbons,” Gibsons said.
“Therefore, while there is likely to be some short to medium-term support for the tanker market, the current longer-term trajectory appears less favourable and might be one of the first examples of the paradigm shift away from oil in advanced economies,” the broker added.