Texas tea party time for suezmax and MR tankers?

There’s been a flurry of public offerings for shipping companies, and the Private Equity guys are closing in on some big deals that will be announced in the new year. Though the tanker brokers have some fabulous parties, and are entertaining their oil company clients who visit New York for the holidays, their research departments are hard at work. Poten & Partners (one of the few brokers remaining in midtown), which offers consistently good analytics, has written a provocative “opinion” piece.

Ostensibly, Poten’s article celebrates the rally in the suezmax trades, based partly on a correlation with the VLCC trades, which have shown a strong finish to the year, and an increased number of suezmax cargoes moving from West Africa out to India- even as imports to the US, a “legacy” suezmax run, have been “crowded out” by US inland oil production.

The report then turns to a politically charged topic, noting: “The silver lining for suezmaxes in the US crude oil production could develop if export restrictions are lifted.” The New York broker then goes on to point out that, were US crude exports to be sanctioned by the Department of Energy (and the US Department of Commerce- which issues export licenses), the suezmax would be an optimal size.

Exports of crude oil from the US are currently prohibited, with a few exceptions. However, that may be changing. The US Secretary of Energy, Ernest Moniz, speaking at an energy forum last week, suggested that it may be time to take a fresh look at 1970’s era regulations. Oil companies, notably Exxon Mobil, along with their trade association- the American Petroleum Institute, have been pushing for the elimination of these restrictions.

The present prohibitions on most US crude exports were enacted in the mid 1970s, with the 1973 – 1974 embargo fresh in the minds of lawmakers. Now, the tide has turned. In early December, the Department of Energy said that US oil production was at its highest levels in 25 years, now exceeding 8m barrels per day, having grown 18% in the past 12 months. A related statistic shows that US energy imports have dropped to 28% of the country’s supply- on the strength of product exports (now a net positive). 2013 has seen strength in MR rates, including the recently created TC14 a Houston - Amsterdam voyage covered by the Baltic Exchange.

One company to watch in the midst of these potential changes is Diamond S Shipping, a privately held owner in the product tanker and suezmax sectors, with a major investment position by funds managed by Wilbur Ross. Earlier in December, Diamond S acquired three product tankers from a Cargill-related entity, in return for a shareholding in Diamond S. Since the big commodity traders / hedge funds, this Cargill entity, CarVal Investors, qualifies as the latter, prefer liquidity events, in contrast to holding illiquid securities- analysts have wondered whether this deal portends some type of offering in the works for Diamond S. If so, it would be a happy Holiday present for investors with Ross an early enthusiast for the product tanker sector.