Must-know crude oil tanker outlook: Some good news and bad news (Part 5 of 10)
U.S. production and global trade
If there’s one factor that we might have missed before, it’s Europe. As the United States continues to produce more crude oil, some of this oil has to go somewhere. If it’s not domestic, it has to be exported. Because the United States doesn’t allow exports of crude oil for the most part, the fossil fuel must first be refined and exported as product oil.
The chart above shows total crude oil and product oil from the United States to major European importers. While the United States used to export just about 5,000 thousand barrels of oil (mostly product oil) to Europe, that figure has more than quadrupled over the past few years.
Shifting trade routes
So while European refiners shipped oil to the United States in the past, the trend has reversed so that product oil now ships from the United States to Europe. Product shipment doesn’t affect crude tankers directly. But it could negatively affect crude oil imports, unless Europe decides to drop product oil imports from other countries.
There are several reasons why refineries in Europe are in a structural decline, but the primary reason is economics. Most European refineries were built around the 1940s and were designed to produce gasoline. But today, European autos primarily run on diesel. Although a large percent of U.S. autos run on gasoline, cheaper crude in the United States makes U.S. refiners more competitive.
The development of new and modern refineries in countries such as India, Saudi Arabia, and China is expected to shift crude shipments away from Europe and to countries such as India and China. So even if China and India’s crude oil imports may show strong fundamentals, we must be a bit careful.
We’ll see whether we can find more information or indicators on European oil seaborne crude as we move forward and analyze how they might affect the Guggenheim Shipping ETF (SEA) and crude tanker owners such as Tsakos Energy Navigation Ltd. (TNP), Teekay Tanker Ltd. (TNK), Nordic American Tanker Ltd. (NAT), and Frontline Ltd. (FRO).
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