The unprecedented flow of crude from the U.S. storage hub in Cushing, Oklahoma, to Gulf Coast refiners is poised to boost gasoline exports and tanker demand when most of the shipping industry is still losing money.
The Seaway pipeline reversed oil flows on May 17 for the first time since it opened in 1976 and will supply as much as 400,000 barrels a day by 2013. That will cut costs for refineries and encourage them to make more products for export, said Jonathan Chappell, a shipping analyst at Evercore Partners Inc. in New York. Shares of Scorpio Tankers Inc. (STNG:US), which operates 19 of the vessels, will rise 56 percent in 12 months, the average of nine analyst estimates (STNG:US) compiled by Bloomberg shows.
The U.S. is already shipping a record amount of gasoline as domestic oil output reaches a 13-year high and fuel demand weakens. The U.S. prohibits most crude exports, spurring sales of refined products. Rates for Medium-Range tankers, each hauling 38,000 metric tons of gasoline, will rise 17 percent to $14,657 a day this year and to $16,000 in 2013, according to the median of 10 analyst estimates compiled by Bloomberg.
“This is likely to mean better refinery margins and more U.S. product exports,” said Urs Dur, a New York-based analyst at the investment-banking unit of Clarkson Plc, the world’s biggest shipbroker. “That is good news for shipping, especially oil-product tankers.”
Demand for refined-product tankers, which also carry diesel and heating oil, will exceed supply this year, according to Capital Product Partners LP (CPLP:US), the operator of 13 Medium-Range vessels. The global fleet will expand 2 percent as cargoes rise 3.4 percent, Chief Executive Officer Ioannis Lazaridis told analysts on a May 2 conference call.
Shares of the Piraeus, Greece-based company jumped 23 percent to $7.54 in New York trading this year, compared with a 1.5 percent gain for the Lloyd’s List-Bloomberg Top 50 Shipping Index Value of the largest companies. The stock will advance 24 percent to $9.38 in the next 12 months, the average of four analyst estimates compiled by Bloomberg shows.
Scorpio Tankers, based in Monaco, climbed 13 percent to $5.55 this year and will reach $8.64 in 12 months, the analyst forecasts show. The company’s net loss (STNG:US) will narrow to $13.2 million this year from $82.7 million in 2011, according to the mean of seven estimates.
U.S. gasoline exports rose threefold since 2010 to a record 553,000 barrels a day in the first quarter, Energy Department data show. Shipments of refined products to Mexico and South America will gain a combined 24 percent to 1.8 million barrels a day in 2012, London-based Clarkson estimates.
Gasoline demand in the U.S. has contracted for 38 weeks in a row from a year earlier, according to MasterCard Inc.’s SpendingPulse report. The pump price of regular gasoline in the U.S. fell to $3.641 a gallon on May 27 from an 11-month high in April, data from the American Automobile Association show.
The anticipated surge in gasoline shipments may not be immediate. Initial flows through the pipeline are likely to be a mix of heavier crudes yielding more heating and fuel oils, as well as crudes that produce a higher proportion of so-called light products such as gasoline, said Andy Lipow, president of Houston-based consultant Lipow Oil Associates LLC.
The market for U.S. gasoline exports may also weaken amid signs a global recovery is faltering. World growth will slow to 3.5 percent this year from 3.9 percent in 2011, the International Monetary Fund estimates. Gasoline consumption retreated 0.6 percent in 2008 amid the global recession, the first drop in more than a quarter century, figures from London- based BP Plc show.
European demand slumped 5.3 percent that year, the most for data going back to 1966. The region’s leaders are still trying to contain a debt crisis that is threatening to force Greece out of the euro. The economy of the 17-nation currency zone will contract 0.35 percent this year, the median of 32 economist estimates compiled by Bloomberg show.
Rising earnings for product tankers contrast with a slump in returns for owners of other types of merchant vessels. The Baltic Dry Index, reflecting the cost of hauling dry-bulk commodities including coal and iron ore, fell 38 percent since the start of January, retreating for a third year.
Rates for Suezmax tankers, each carrying 1 million barrels of oil, dropped 37 percent, according to the London-based Baltic Exchange, which publishes costs across more than 50 maritime routes. About 90 percent of world trade moves by sea, the Round Table of International Shipping Associations says.
The switch in the 500-mile Seaway pipeline was prompted by a glut at Cushing that left the U.S.’s West Texas Intermediate grade of crude trading at a discount to Europe’s Brent benchmark for an unprecedented 21 months. Midwest refiners typically use oil priced off WTI, giving them an advantage over those on the East and Gulf Coasts, which rely on supply linked to Brent.
Gulf Coast refineries ran at about 89 percent of capacity this month and made about $23 for each barrel of oil processed, according to data compiled by Bloomberg. Midwest refineries had a utilization rate of 94 percent and a $31-a-barrel margin, the data show. Brent is trading at an 18 percent premium to WTI, compared with a five-year average of 4 percent.
“The Seaway pipeline reversal will give U.S. Gulf Coast refineries running crude priced off WTI a competitive advantage,” said Victor Shum, a senior principal at energy consultant Purvin & Gertz Inc. in Singapore. “If margins are good, this could increase utilization rates and output of refined products for export.”
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