News archive September 2002

Iraqi oil exports have risen by 1 million b/d to 1.65 m b/d in the last 2 weeks. This should ease price pressure, as will the deal reached to avert a strike by Mexican oil workers (in the face of continued Middle East tension). The low level of stocks throughout the OECD and the seasonal Northern Hemisphere increase in demand means that there is plenty of room for sustained oil trade above that associated with relatively low economic growth.

Continuing drought in Australia and rain-affected harvests in Canada and the EU have contributed to a lowering of forecast wheat and coarse grain production. As a result the latest projections by the IGC (International Grains Council) have forecast coarse grain trade as unchanged from 01/02 at 106Mt and wheat trade hit hard, falling from 106 to 101Mt(-4.7%).

Furthermore, consumption continues to outstrip production, further reducing already low exporter stocks. This implies strong potential for volatile trade flows in the future.

August steam coal exports from China were 9.6% lower this year than the 2001 figure, totalling 5.9 Mt. This has continued the declining trend of Chinese coal exports seen through the year, to date with Jan - Aug exports down 4.4 Mt (9.7%) on the same period in 2001. The weaker performance by China has increased opportunities for longer haul suppliers to Asia to the benefit of tonne-mile demand.

A growth in coking coal exports has, however, gone some way to making up for the drop in steam coal. Over the year to date China has exported 7.3 Mt of coking coal, up 1 Mt (17%) from 2001.

A possible oil workers strike by Mexico's state oil company on 2nd Oct threatens to disrupt output and exports. Mexico is reliant on oil for a third of its revenue and last weeks 3.5% fall in the peso was attributed to the impending strike. Pemex produces around 3.5 mb/d and exports 1.6 mb/day, most of these exports are carried in Aframax tonnage to the US Gulf.

Dated Brent was trading at $29.06 late afternoon in London.

The International Monetary Fund (IMF) has revised down its economic growth projections for 2003. Predicted world growth has been lowered from 4% to 3.7% and forecasted growth in the US economy has been reduced 0.8% to 2.6%. Previous growth optimism followed a strong performance from the US economy in the 1q 02. This intense growth period did signal the start of a recovery, but not as robust as initially expected.

Japan was the only country to have growth figures revised up by the IMF, however, at 1.1% the recovery in the Japanese economy is still forecast to be a modest one.

Some bullish news on the crude cargo front, after months of lower export levels under the UN oil-for-food programme, Iraq's exports were up significantly last week to an average of 1.9 million barrels per day - mainly to Western discharges. This compares with just 0.3 mb/d at the beginning of the month. Of all shipments, four were from Ceyhan (4.4 m/b) of oil and five from Mina al-Bakr terminal, (8.9 m/b). The rise comes as Iraq drops its 'surcharge' on cargoes and could be the start of more sustained lifting volumes (bar military action in the area).

Meanwhile there might be more oil on the market from OPEC, according to the Venezuelan energy minister. The minister reiterated a report from earlier this week that OPEC would raise production before its next meeting in December through its price band mechanism if prices remain above the upper limit of the band ($28/barrel).

Despite a significant fall in wheat and course grain production and exports for the year the world soybean market has shown resilience to perceived global agricultural hardships. This crop year's (2001/2002) USDA production forecast is 8.25 Mt greater than the year previous, the export market is expected to grow by around 4.2 Mt from 2000/2001 to 124 Mt. Also world consumption for the crop year is set to grow by around 7 million tonnes to 45.25 Mt. This is positive news for the dry bulk shipping industry and will go someway to making up for the shortfall created by negative growth in the grain market.

Indecision is making its mark on the oil and tanker markets at the moment with no clear signals on the political or economic front. As a result, stock markets and oil prices are very volatile (with lows on the share prices and highs on the oil markets reached today) and the general feeling is one of heavy uncertainty. With few ready to take the plunge (such as OPEC staying put, the IEA reluctant to release emergency stockpiles and continued speculation over Iraq) the result has been higher prices and a bearish tone in the tanker markets.

Dated Brent was trading at $29.33/barrel by late afternoon in London.

The oil markets continue to show considerable price volatility at the start of the week again on concerns over the situation in the Middle East. Iraq has said it will oppose any new UN resolution (to the one it agreed to last week on the return of weapons inspectors) driving up fears of a US military attack and potential disruption to crude supplies.

On the OPEC front Libya has said that the group may increase oil production if its benchmark price rises above $28 / barrel for 20 consecutive trading days - this would help ease any would-be 'war premium' on prices. OPEC is currently producing about 2 mb/d in excess of its formal quota, but this has done little to ease prices as this only compensates for lower Iraqi exports compared with last year.

Dated Brent was trading at $28.80/barrel mid-afternoon, Monday, in London.

China's exports rise post-mid year

Industrial production and exports both rose over the beginning of the second half of the year, indicating higher than expected annual growth. China's economy grew by 7.8% in 1h02 and, although this represents a rate of expansion far beyond the aspirations of more mature industrial economies, analysts had feared that 2h growth would slow down. In January-August inclusive, exports rose by from year earlier levels 25% and growth in industrial production was 12.7% up on a year ago.

The continued growth in industrial production is good news for the oil tanker market, as it implies increased demand for energy in general, including oil even though, so far this year imports have risen only to a limited degree.

OPEC ministers today decided against raising present quotas for oil production over the 4q02. The OPEC president stated "There is a consensus that there is enough oil. There is no need for more than we are physically putting on the market at the moment". OPEC left output levels unchanged with the decision largely based on the assumption that Iraqi exports will return to levels seen last year (averaging over 2.4 mb/d) and that 'over target production' will continue. The decision indicates that is likely to overlook the 'above quota' output levels that some members are currently producing - which might lead to more opportunity in these particular markets. Members are currently exceeding the group's target by 1.8 million barrels a day a figure that could rise in the run up to the Northern Hemisphere winter. OPEC's next meeting is scheduled for December 12.

Dated Brent was trading at $28.23/barrel by late afternoon in London.

A report from the Korean customs office released on 18th September showed a fall in iron ore imports for 1H 02. The reduction in imports is the result of reduced blast furnace operations at Posco's Kwangyang steel works due to routine maintenance. Imports totalled only 20.85m tonnes over the 1H 02 a decline of 14.7% on the previous year.

The blast furnace at Kwangyang is now operational again and exports for the 2H 02 are, therefore, expected to increase by around 4m tonnes to meet the regained capacity.

Iraqi oil exports were higher last week averaging 0,91mb/d. The weekly export volume had more than doubled from the week previous. Annalists say that the upward surge in export volumes is a result of Iraq removing an export surcharge that was outside the remit of the UN. The exports were completed in 5 shipments including 1 VLCC from Mina al-Bakar terminal, discharging west.

The increase in oil exports represents about half of Iraq's capacity. The mood within the market is that improved Iraqi output will be sustained at least in the short term. However, the continued regulation of Iraqi oil exports under the UN oil for food programme coupled with the US hawkish tone on military action means a volatile supply situation will follow.

By late afternoon in London Dated Brent was trading at $28.49/barrel.

A recent freight train derailment at Richards Bay is threatening the movement of coal from the mines in the area. Stock levels at Richards Bay have been falling in recent weeks and this new development can only accelerate the trend.

At present the accident has not impeded the long term terminal export schedule but may hinder coal transported into the terminal in the short term. A rail car shortage being experienced in Southern Africa is exasperating this problem.

The pressure came off oil prices today as Iraq promised to open its doors to UN weapons inspectors, making a US attack less likely. At the same time, in the to-ing and fro-ing of opinion over whether OPEC will raise production at its meeting this week has swung to the doubtful side, with analysts today saying that the weakness in oil prices will take the pressure off the group to increase output. Although the tanker sector needs more crude cargoes to help rates recover, this might come in the form of increased Iraqi exports. This year Iraqi exports have fallen to a very low level, partly on the back of the US-backed retro-active pricing system that has been in force since the end of 2001. At the beginning of September exports were averaging just 0.4 mb/d (compared with 2.03 mb/d a year ago). The UN is now under pressure to change the retro-active oil pricing system to encourage more liftings of Iraqi crude - but it has indicated it will only reverse the current system if Baghdad pledges to not to impose 'illegal' surcharges it to generate more revenue. It was these additional payments that prompted the retro-active pricing system in the first-place.

Dated Brent was trading at $27.78/barrel by late afternoon in London Tuesday.

A worse than normal beginning to the monsoon season caused Goan iron ore exports in June to fall to just 0.34m tonnes, less than half the June 2001 level. Despite this setback, exports on the year to date of 13.6mt are up 19% on Jan-June 2001. This implies the potential for a sharp post monsoon rebound in activity for the 4q 02.

The largest refinery in Kuwait is set to return to full production capacity next month. The Ahmadi refinery has been under producing for two years following an explosion. Current refining rates at Ahmadi are 0.32 mb/d, this rate will be returned to its full capacity of 0.44 mb/d over the course of the month.

Despite the projected increase of 0.12 mb/d it is uncertain whether the extra product, which is earmarked for export, will be absorbed by a fairly depressed Asian economy (Kuwait's major export market). It could, however, add some upward pressure to Eastbound clean tanker rates.

Doubts over the strength of recovery of the world's mature industrial nations may be mounting, but much of industrialising Asia is now expanding at a brisk pace. For example, Thailand's national economic and social development board is predicting GDP growth of between 4 and 4.5% for this year, way above the 2001 figure of 1.8%.

Elsewhere in Asia, latest industrial production data for Korea (+8.9%), Taiwan (+11.4%), Malaysia (6.9%), Philippines (+5.9%) and Singapore (+17.8%) all show strong year on year growth.

As reports indicate an Iraqi rejection of the UN inspection plan today, oil prices have surged and the tanker market is showing preliminary indications of a rise in VLCC rates from the Middle East Gulf. US President George Bush said Friday that he seriously doubts Saddam Hussein will meet US demands for inspections to avert a military assault.

Early reports of a rise in VL rates comes after a very subdued period of market activity in the Middle East Gulf (with rates as low as W28 reported Friday morning for caroges trading West). Loadings from Mina al-Bakr have largely been absent since late August - partly due to the possibility of military action in the area.

Brazil's forecast 2002/2003 soya bean crop, due to begin planting in December, has been revised upwards to 49.7Mt by independent analysts Agroconsult. The forecast has been raised from a previous projection of 48.2Mt due to an expectation that high world soya prices will encourage Brazil to plant more soya than initially expected.

Brazil's farmers are increasingly attracted to soya due to its high Chicago price and the belief that the Real is still a long way from recovery. Brazil is the second largest soya bean producer and exporter after the US, having exported a total of 27.4Mt of soya beans and meal during 2001/2002.

In a blow to short term prospects for European steel production, European car and van sales in August were down 10% on the previous month, according to carmaker estimates. Total car sales in western Europe numbered less than a million for the first time in more than ten years with French markets hit hardest.

According to a report in Petroleum Argus today the Russian government is facing conflicting pressure from various states, power stations and its energy ministry on whether to impose fuel oil export quotas (that could reduce export volumes) this winter. The deputy Prime Minister said in August that the government was planning on restricting exports to 20% of fuel oil production to ensure sufficient domestic supplies through the winter. In contrast the Energy and Finance ministers see no reason for total export quotas and prefer a system of individual export quotas in specific regions at risk from low winter stocks. The report said that the Finance and Energy ministries are keen to boost exports so as to ensure maximum revenue.

Dated Brent $27.95/barrel by late afternoon in London

In a blow to short term prospects for European steel production, European car and van sales in August were down 10% on the previous month, according to carmaker estimates. Total car sales in western Europe numbered less than a million for the first time in more than ten years with French markets hit hardest.

According to a report in Petroleum Argus today the Russian government is facing conflicting pressure from various states, power stations and its energy ministry on whether to impose fuel oil export quotas (that could reduce export volumes) this winter. The deputy Prime Minister said in August that the government was planning on restricting exports to 20% of fuel oil production to ensure sufficient domestic supplies through the winter. In contrast the Energy and Finance ministers see no reason for total export quotas and prefer a system of individual export quotas in specific regions at risk from low winter stocks. The report said that the Finance and Energy ministries are keen to boost exports so as to ensure maximum revenue.

Dated Brent $27.95/barrel by late afternoon in London

The forecasted yearly grain production in Australia has fallen again this month due to prolonged drought in agricultural areas. The latest figures from the Australian Bureau of Agricultural and Resource Economics (ABARE) suggest winter grain production for 2002/03 will be 15m tonnes less than last year, totalling only 22m tonnes. Wheat production estimates alone have fallen from 19m tonnes in July to only 13.5m tonnes in early September, a figure 44% down on last years total of 24m tonnes making 2002/03 the lowest harvest since 1994/95.