FOR one reason why crude is under $80 per barrel despite war in the Middle East, look to the Americas. The shift in tanker trades away from the Middle East Gulf continues, courtesy of rising production in the US, Brazil, Guyana and Canada.

The looming question for Opec+ producers – particularly Saudi Arabia – is whether it makes sense from a crude-price perspective to scale back cuts as planned starting in October.

Brokers and analyst reports have recently highlighted the rise in crude cargo supply in the Atlantic Basin, as well as from Canada’s TMX pipeline in the Pacific.

“The US, Canada, Guyana and Brazil in particular have increased output in recent years, eating into Opec’s market share,” said Poten & Partners. “If [Opec] starts to roll back their production cuts, it will be very slow and in small increments, so as not to flood the market and undermine oil prices.”

According to Gibson Shipbrokers, “Opec+ have already hinted that if demand remains weak, they may keep production cuts in place for longer to stabilise the market.

“If Opec+ members are unable to keep supply constrained, the market seems destined to be oversupplied in 2025,” said Gibson, adding that “this could prompt an increase in storage demand, perhaps on tankers if the situation were to become extreme”.

Gibson noted that weak demand, particularly from China, stands “in stark contrast to the supply outlook” in North and South America.

The aggregate production of the US, Canada, Brazil and Guyana is projected to grow by 1.1m barrels per day in 2024 versus 2023, then by a further 1.1m bpd in 2025, according to the latest International Energy Agency outlook.

Poten calculated that the Opec+ share of global production fell from 51% in 2Q21 to 48.4% in 2Q24, and would decline to 47.9% by 2Q25 if voluntary cuts were extended.

Tanker spot rates remain subdued

The ascent of Atlantic Basin exports has led to more long-haul business to Asia for very large crude carriers, and more cargoes to Europe and the Americas aboard suezmaxes and aframaxes.

The overall tonne-mile effect is positive. Nevertheless, crude tanker rates remain subdued due to tepid demand.

Jefferies analyst Omar Nokta said in a client note on Wednesday, “Tanker rates are pulling back after their recent rally due to a slower pace of activity. Following the jump in spot volumes during the second and third weeks of August, VLCC fixture counts have moderated to more normal levels seen in prior weeks. After reaching roughly $40,000 per day, non-eco VLCC spot rates have slipped below $30,000 per day.”

Jefferies estimates that average spot rates for non-eco VLCCs are down 16% year to date versus the same period in 2023, with suezmax rates down 21% and aframax rates down 18%.

Destinations for crude from Guyana, Brazil, US and Canada

Brokerage BRS cited the potential for Guyanese crude exports to support suezmax demand in the near term.

Guyana’s exports are primary loaded aboard VLCCs and suezmaxes, but VLCCs are forbidden from loading from the country’s offshore terminals in September through January due to heavy swells, shifting more cargoes to suezmaxes.

BRS predicted that suezmax loadings in Guyana could hit a record of 25 per month this fall. 

Guyana’s crude is primarily shipped to the US, Europe and China. BRS noted that the most frequent destination for VLCCs and suezmaxes loaded with Guyanese crude is Panama’s Chiriqui Grande. The crude is then shipped to the Pacific via the Trans-Panama Pipeline, and reloaded on aframaxes for transport to the US west coast and on VLCCs for transport to China.

In Brazil, the latest crude export data from Petrobras (for 2Q24) shows 59% of volumes being sent to Asia (50% to China), 30% to Europe, and 11% to the Americas and the Caribbean.

In the US, crude exports averaged 3.8m bpd in August, according to preliminary data from the Energy Information Administration. Exports averaged 4.2m bpd in January through May, the latest month when final data is available.

The EIA data shows that the largest buyer of US crude exports in the first five months of this year (excluding Canada, which imports significant volumes by land) was the Netherlands, followed by South Korea, the UK, China, Singapore, Spain, Taiwan and India.

In Canada, most crude exports flow by pipeline to the US, where it’s either refined or re-exported via the US Gulf.

Most of Canada’s seaborne crude cargoes are loaded from the TMX pipeline in British Columbia, then shipped aboard aframaxes to US west coast terminals or to ship-to-ship loading areas where cargoes are transferred to VLCCs for transport to Asia, primarily to China.