2025.02.04

Oil prices drop to one-month low amidst concerns over Trump's tariffs on Canada, Mexico

Oil prices fluctuated on Monday, closing at a one-month low due to the expiration of a higher-priced contract and concerns over tariffs imposed by U.S. President Trump on Canada, Mexico, and China. Trump's threats of tariffs on Mexican imports were paused after Mexico agreed to reinforce its border to combat illegal drugs. Brent futures for April delivery rose slightly, while WTI crude also saw a modest increase. The tariffs on Canadian energy imports could disrupt domestic markets and impact U.S. refiners, as Canada and Mexico provide a significant amount of oil for fuel production. Despite initial growth in U.S. manufacturing, Trump's tariffs could lead to inflation, prompting the Fed to raise interest rates, which could slow economic growth. The tariffs will also impact refining profit margins and ultimately lead to higher gasoline prices for consumers. OPEC+ has agreed to gradually increase oil output from April, while the long-term demand outlook for global oil consumption shows a steady level through 2040.

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Trump Postpones Tariffs on Mexico and Canada

Donald Trump has reached agreements with Mexico and Canada to postpone tariffs on their exports to the US, following phone calls with their respective leaders. The agreements involve Mexico sending troops to combat fentanyl trafficking and the US halting arms traffic to Mexico. The tariffs would impact imports of 4m barrels of oil per day from Canada and 500,000 barrels per day from Mexico. The potential shift in trade patterns could benefit tanker shipping. Despite initial announcements of tariffs, discussions are ongoing and the overall impact on tanker earnings remains uncertain. Trump also mentioned speaking with both Sheinbaum and Trudeau regarding border and trade issues.

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2025 VLCC Market Outlook: Potential for Growth

The VLCC market is poised for potential growth in 2025, supported by supply constraints, an aging fleet, and increasing sanctions on the shadow fleet. With only six new VLCCs set for delivery this year, fleet expansion remains limited. Additionally, 35% of VLCCs are over 15 years old, and 16% are more than 20 years old, which could further tighten supply. Sanctions, particularly the recent U.S. restrictions on 183 vessels, have contributed to rate increases, though the initial surge was not sustained. Indian refiners have shifted more crude imports from the Atlantic, boosting VLCC demand, but continue purchasing Russian oil at a discount despite sanctions. Looking ahead, oil supply growth is expected to accelerate in 2025, with 900,000 additional barrels per day projected. Much of this will be exported to Asia, supporting VLCC demand. However, risks remain, including uncertain global oil demand, OPEC+ production decisions, and geopolitical factors such as the potential reopening of the Red Sea to tankers and policy shifts under a possible Trump presidency. While the outlook is positive, past underperformance suggests a cautious approach.

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Bahri profit soars to record high after growing VLCC fleet

Saudi Arabia's top shipping firm, Bahri, reported a record profit of $578 million in 2024, driven by revenue growth from a larger fleet - total 93 crude tankers. The company added new vessels including VLCCs, chemical tankers, bulkers, and multipurpose vessels, with plans to expand further in 2025 by acquiring 10 additional VLCCs. Bahri secured $1.5 billion in Islamic financing for this expansion and signed agreements for newbuild VLCCs. The company also sold older vessels, formed a partnership with Petredec, and positioned itself as a global leader in shipping and logistics.

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Sanctioned tanker arrive for recycling at Alang shipyard, India

Tanker Solan has recently arrived at the ship recycling beach at Alang. The Solan, previously known as the Nolan, was sanctioned by the US Treasury for its links to the Mehdi Group, accused of facilitating the movement of sanctioned Iranian crude oil. The vessel was sold for recycling at a lower price due to its sanction history. The arrival of the vessel has brought attention to the ship recycling sector in India, as they represent a unique case of officially sanctioned vessels being recycled in the country.

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Tengiz oil field in Kazakhstan hits record production levels in January 2025

Daily production from Kazakhstan's largest oil field, Tengiz, reached a record high of 870,000 barrels per day in January 2025, a 45% increase from the previous year. Operated by Chevron-led Tengizchevroil (TCO), Tengiz is expected to produce 34.7 million metric tons in 2025. The completion of scheduled maintenance at Tengiz allowed for the launch of a new third-generation plant, boosting crude oil output by 12 million tons per year. Output was reduced for maintenance late in 2024 but has since increased. Oil exports via the Caspian Pipeline Consortium system are expected to increase with higher Tengiz output. Chevron did not comment on production levels, and the Kazakhstan Ministry of Energy did not respond to requests for comment.

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Nigeria's upstream oil regulator set to enforce supply quotas for local refineries, including Dangote Refinery

Nigeria's upstream oil regulator will not issue export permits for oil cargoes from producers who do not meet supply quotas to local refineries, including Dangote Refinery, in accordance with the Petroleum Industry Act. The Dangote Refinery is calling for enforcement of the law, as producers claim they can't meet quotas due to low prices. The regulator has warned of penalties for non-compliance and will not allow diversion of crude designated for domestic refineries to be exported. Nigerian refineries need 770,500 barrels of crude per day, with Dangote Refinery needing 550,000 bpd. Refiners blame producers for not meeting obligations, while producers cite low prices as reason for exploring other markets.

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Ukraine drone attack on Russian energy facilities sparks fires and disruptions

Ukraine launched a drone attack on energy facilities in southern Russia, causing fires at an oil refinery and gas processing plant and disrupting flights. Russia intercepted and destroyed 70 drones, with fires at a Lukoil refinery in Volgograd and a gas processing plant in Astrakhan. The attacks are seen as retaliation for Russia's invasion of Ukraine. While some reports claim the fires have been contained, others suggest significant damage. Both Gazprom and Lukoil have not confirmed if their facilities were targeted. Flight suspensions were implemented but later lifted for safety reasons.