News archive December 2002

Leading investment banks have predicted growth in the Eurozone will contract early next year following stagnant growth over the 4q 02. Weak consumer spending, sluggish industrial production and ailing business confidence has led to the gloomy outlook. Economists from Morgan Stanley also admit there is a chance of outright recession, perhaps stretching to three quarters of negative growth.

Morgan Stanley has cut its Eurozone growth forecast for 2003 to just 1% from a previous estimate of 1.4%, other banks such as HSBC have also lowered growth forecasts.

Brent crude was trading at $29.80 a barrel in London late morning today.

According to Platts International Coal Report, recent lower production capacity at Tokyo Electric and Chubu Electric caused by taking offline "unsafe" nuclear reactors will increase Japanese coal imports by 6 Mt for the current fiscal year ending in April. The increase in coal burn is not expected to carry over to the New Year. Japanese trading houses are generally of the opinion that the shutdown of reactors will not drag on past July 2003 and coal purchasing currently reflects this with buyers wary of over stocking.

US refinery production capacity has so far been relatively unaffected by the lack of oil from Venezuela, which normally accounts for 10% of US imports. Alternative supplies have been sourced from Europe, Africa and Canada adding to tanker tonne mile demand. However, if the strike in Venezuela continues a noticeable affect on refinery output will occur in January. There may be a positive end in sight as support or the general strike dwindles, as Venezuela can not supply its own domestic demand for gasoline. This implies that domestic support for the strike may crumble if it begins to impact on the Venezuelan population in general.

Russian and Ukrainian wheat fields could have been damaged by recent cold weather coupled with a lack of protective snow cover. The US agricultural attach

Over the course of the 19 day general strike oil production in Venezuela has fallen from 3 mb/d to 0.2 mb/d. It used to export 2.4 mb/d mainly to the US market. Since the beginning of the strike only three tankers have loaded cargo and left Venezuela, compared to 12 - 14 a day in normal circumstances. In the past two days the Supreme Court has ordered oil workers to return to their jobs. There has been little response to this order but two oil tankers are currently being loaded according to Venezuela's deputy oil minister. Aframax vessels have largely shifted to UKCont markets as a result of the Venezuelan cuts.

Brent was trading at $29.7 a barrel in London this afternoon largely on the back of Venezuelan cuts and heightened concerns over war in Iraq.

The Japanese cabinet office has reduced its economic outlook for the second month in a row. The last time Japan's government lowered it economic assessment for two consecutive months was May and June 2001.

Weaker industrial production and exports have been blamed for the backwards revision. Slowing demand both in the domestic and overseas markets led to a fall of 0.2% in industrial production in October when compared to the previous month's figures.

On the positive side, Japan's corporate profit estimates have been increased and earnings could improve further.

Dated Brent was trading at $28.98 a barrel, late afternoon in London.

World crude steel production in November was 11.1% higher than in 2001, at 75 Mt. All key regions showed high levels of growth, with the exception of the Middle East. Asian figures rose by 13.8% year-on-year with China's production up by 18.1% and Japan's up by 14.1%. US steel production last month was 15.6% higher than in 2001. In the 11 months of the year so far world production is 5.9% up on the corresponding period 2001, only the EU countries have seen a production fall (-0.4%) over this 11-month period.

Venezuela's normal oil exports to the US are 1 mb/d of crude and 0.2 mb/d of product. However, this month's national strike has meant that the country's production figures have been cut by around two thirds from 3 mb/d and exports of crude to the US are currently somewhere in the region of 0.3 mb/d. The fall in production has forced rates up but routes from West Africa and UKCont have seen the most significant rises as the US has looked elsewhere to replace lost supplies from Venezuela.

Brent crude was trading at $27.94 per barrel late afternoon in London.

Coal production in Russia over the first 10 months of the year was down by 21.6 Mt on 2001 figures. The October figures were only slightly lower than those in October 2001 at 21.8 Mt. Despite the considerable fall in production Russian exports rose over the first 10 months by 5.4 Mt, totalling 39.9 Mt. The October export figure of 4.0 Mt was 0.4 Mt higher than 2001 figures.

Richards Bay loaded 59.8 Mt of coal in the first 11 months of 2002, according to the South African Coal Report. Total December loading is estimated at 6 Mt, with an end of year figure somewhere around 65.8 Mt. This figure would fall 2.2 Mt short of the 68 Mt target set at the beginning of the year.

Berthing delays are currently 24 hrs and stocks for December are 2.8 Mt (sufficient for 15 days loading). The terminal will be closed from 22h00 on 24th December to 06h00 26th December.

An expansion plan providing an extra 10 Mt capacity at RBCT is now expected to begin early 2003, completion would most likely be in 2005.

Spain has prohibited single hulled tankers from carrying heavy oils from 1st January 2003 into its ports becoming the first country to impose a post-Prestige shipping ban. Early reports suggest that the law applies to all single hulled tankers irrespective of age or flag that are carrying any of the following cargoes: Crude oil, fuel oil, tar or asphalt. Once the law is in place failure to comply will result in a fine of $3.1m and until the 1st of January any single hulled tankers carrying heavy oil cargoes will need to notify maritime authorities 24hrs before calling at a port.

Spain has expelled 6 vessels from its waters since the Prestige sinking. The move will undoubtedly put future upward pressure on tanker rates.

Meanwhile oil prices continue to rise - mainly on the back of disruption to oil production and exports in Venezuela.

Dated Brent was trading at $27.82 per barrel, late afternoon on Monday.

The US is showing some concern over the virtual stoppage in oil exports from Venezuela as the public workers' strike shows no sign of relenting. In the 3q02 the US imported about 1.8 mb/d of crude oil, or 24% of its total from Venezuela and this week analysts are saying that there are could be shortages of crude (and heating oil) and are already warning of low inventory levels. Concern is particularly high considering the possibility of disruption to Gulf supplies in the event of military action in Iraq.

Dated Brent was trading at $26.76/barrel by late afternoon in London.

The ability of Tokyo electric to meet its customers demands for electricity is no longer assured as production capacity has been reduced by 25% after the temporary closure of nine nuclear reactors. Short-term closures will increase as the company has decided to close all 17 of its reactors for checks, 15 of them by March. The nine reactors that are already closed were deemed unsafe by government inspectors. The refurbishment process has already caused demand to exceed production capacity. In a snowstorm on 9th December consumer demand for electricity reached 52 million KW, considerably higher than the company's reduced maximum production rate of 51 million KW. Alternate sources of power are being sourced to make up for the shortfall and older power stations are being brought back online.

OPEC today agreed to lower its overall production levels (by about 1.5 mb/d) in an attempt to raise oil prices. The group will however raise its official output ceiling to appease some members. Ever since OPEC decided to keep production quotas unchanged at its September meeting, output has been firmly on the rise as most members tried to take advantage of the higher prices. This has been to the benefit of tanker - particularly VLCC - rates, which have risen sharply since the 3q02.

The news of lower OPEC output (and in theory, fewer cargoes) comes as Iraq pledges to raise exports in the coming months. The Iraqi oil minister said that the country planned to increase its crude export levels to more than 2mb/d. Latest figures suggest Iraqi exports of 1.5 mb/d of crude.

Meanwhile in Japan, a leading utility company has said there is a threat of electricity shortages and has asked customers to reduce power consumption this winter. The problem stems from the closure of a number of nuclear power stations this year. The shortfall has largely (and will continue to be) met by coal imports, but increased imports of crude and heating oil are also likely.

Dated Brent was trading at $26.27/barrel by late afternoon in London.

As the public sector strike intensifies in Venezuela, the national Oil Company PDVSA has reported an output cut of 60% and the country is now producing just 0.96 mb/day. Refined products have also seen a fall in total production, as refineries have had to shut due to a lack of workers. Delays to tanker operations are also putting pressure on refinery product deposits - and forcing lower throughputs. Tanker rates ex-Venezuela have dropped sharply on the back of the severe disruption to oil exports. The strike has been described as 'indefinite' by observers, with protestors demanding their president's resignation.

The general strike in Venezuela has now been running, for a week and traffic movement in Lake Maracaibo is non-existent. The compulsory pilots required to enter and leave the lake are government employees who, like 80% of the country's workers, are part of the strike. At least five ships are currently unable to load their cargoes at several different coal ports forcing key suppliers to declare force majeure on shipments.

Venezuela's on-going public sector strike is starting to have a serious impact on the oil sector, as its state oil company reports a dramatic (40%) fall in output. Exports and the petrochemical sector have also been severely disrupted. Venezuela is the world's fifth-largest exporter of crude and a major exporter to the United States. Earlier this year, disruption to production and exports led to a fall in Aframax dirty rates between Venezuela and the USG, as cargoes proved scarce. The unrest in Venezuela comes as OPEC is due to meet this week to decide on output levels. In November, the group pumped 12% more than its production ceiling.

Dated Brent was trading at $25.36/barrel by late afternoon in London.

In a referendum run by unions on Friday, 95% of the coal miners who took part voted for general strike action in protest at a government-restructuring plan. The main problem seen by the unions is the government's plans to cut 35,000 jobs in the mining sector as part of an overhaul of loss making state industry before EU membership in 2004. An actual date has not been set for the strike but the unions hope their actions will cause the government to tone down its job reduction scheme.

The EU met on Friday and has drawn close to a ban on single hulled tankers transporting fuel oil within EU waters. The implementation of such a ban could be from as early as 1st Jan 2003, with the potential of being extended to all oil cargoes by 2010. These decisions have mainly come as a result of pressure from the European Commission to speed up new controls for governing sub-standard shipping following the "Prestige" tanker disaster.

China's iron ore imports over the first 10 months of 2002 were 91.2 Mt. These figures indicate another significant rise in total iron ore imports for 2002, representing a year-on-year increase of 31.9%. If the current trend in imported ore continues there will be an increase of well over 10 Mt for the 2002 end total.

US Crude stocks remain fairly low with the US Energy Department reporting this week: "Even if crude oil imports have begun to arrive, heating fuel markets are still vulnerable to a stretch of extended cold weather, as it can take up to a month to refine extra crude oil and deliver the increased heating oil to residential customers in the Northeast, where inventories remain very low." It might also be worth noting that the US imports could be hit directly by disruptions from Venezuela as strikes there threaten crude and product exports. Today the Venezuelan state oil company cancelled sales contracts after tanker crews and refineries joined a strike to oust President Hugo Chavez.

Dated Brent was trading at $25.30/barrel by late afternoon, Friday.

Unemployment figures in the US were up to 6% of the workforce in November compared to Octobers figures of 5.7%, this is up on the predicted increase of only 0.1%, according to the US Labour Department. This is a sign of the reluctance US companies have to invest in their own businesses and how they feel about the future state of the economy. The unemployment level is now the highest since April. However, the government revised figures for September and October, indicating fewer job cuts in September and reversing Octobers drop of 5,000 workers to a gain of 6,000.

Oil exports from Venezuela are in danger of being disrupted as a general strike starts to have an impact on production, refineries and ports. Venezuela is the world's 5th largest oil exporter and is a major supplier to the US. Any continued disruption to exports could have repercussions very soon particularly in the Aframax markets. A government shipping agent today reported that all tanker loading had stopped but at the same time as Chavez's ministers insisted operations were normal.

Rumours on the market are that charters have already begun to allow for several days back traffic until the situation has blown over, a short-term reduction in rates may also be a side effect of the strike.

Brent Crude was trading at $25.44 a barrel, late afternoon in London.

Bituminous coal imports to Japan were 1 Mt higher in October than the previous month. The monthly total was 13.6 Mt, an increase 0f 0.7 Mt from the corresponding period of 2001. Japanese coal demand for the first 10 months of the year was 124.8 Mt. This shows a very slight fall in demand from the same period of 2001. Australia has been Japan's main coal supplier over this period, accounting for 74 Mt, with China supplying 18 Mt and Indonesia 14 Mt.

Official reports from Nigeria indicate that the county will ask for its OPEC quota to be raised from its current level of 1.79 mb/day to as much as 2.2mb/day. If given the go ahead, Nigeria will have increased its OPEC quota by 23%. Nigeria produced 1.98 mb/day in October and has a capacity of around 2.5 mb/day, by 2003 Nigeria would like production to stand at 3mb/day.

Algeria will also ask for an increased quota on 12th December. The country's oil minister said that Algeria would like to up its production to 1.1 mb/day from its current level of 0.69mb/day. Crude production at current levels is bordering on oversupply with global demand remaining weak. More oil on the market could put further upward pressure on crude tanker rates. This could start to be reflected in the oil spot market, although prices remain relatively high.

Dated Brent was trading at $25.41 per barrel late afternoon today.