Despite making up nearly 10% of global oil production, South America, specifically Ecuador, Venezuela, Mexico and Brazil, is often forgotten in analyses of the global oil market. However, it is likely that in the near-future exports from South America will form an increased share of global oil supply, creating significant consequences for the tanker market. Brazilliant! The development of new fields, particularly offshore, has been sustained through the high price of oil in recent years. Between 2008 and 2011, the price of Brent crude averaged $87/bbl, an increase of $30/bbl compared to the previous four year period. The consequent development of the giant pre-salt fields off the coast of Brazil has led to the IEA projecting South American oil production to increase to 8.8m bpd in 2014. Running concurrently with this exploration, the global patterns of oil demand have shifted. This is likely to change the nature of tanker shipping in the region, which transported 4.5m bpd of South American crude oil exports in 2011.
Bigger Ships, Longer Distance
Since 2008, crude trade volumes from South America have been moving onto larger ships. As shown in the Graph of the Month, the share of crude exports carried by VLCC and Suezmax tankers increased from 28% in 2007 to 45% in 2011. This is projected to increase to 56% in 2012. In particular, the VLCC share of trade has increased from 7% in 2007 to a projected 23% in 2012. This reflects the change in global demand growth. Chinese oil demand is projected to increase by 23% between 2008 and 2012, while Indian demand is projected to grow by 17% in the same period. This has driven an increase in trade on long-haul routes on larger vessels from South America to the Far East.
Bigger Ships, Shrinking Share
Elsewhere, the growth in the Suezmax share of trade ex-South America has increased from 20% in 2007 to a projected 30% in 2012. This correlates with the decline in Aframax share, as charterers have looked to upsize on cargoes headed to the US to benefit from economies of scale. South American exports to the US have boosted dwt demand for Suezmaxes despite US crude imports from the region declining by 13% between 2007 and 2012. Aframaxes therefore suffered twice, as declining volumes, particularly from Venezuela and Mexico, were compounded by Suezmax competition. Similarly, the share of crude trade carried on Panamaxes from South America declined from 19% in 2007 to a projected 6% in 2012.
Future South American production levels may lead to an increase in exports, should industrialisation, particularly in Brazil, not reduce available trade volumes. If the trends of the last five years continue, growth in demand from Asia may increase the number of cargoes for VLCCs, boosting the sector’s tonne-mile demand and share of ex-South American trade. Suezmaxes are likely benefit from short-haul trade to the US at the expense of the Aframax and Panamax fleets. Ultimately, South America’s crude export pattern, driven by the projected increases in production, is likely to follow the global trend of vessel upsizing, to service the growing demand for long-haul crude trade to the Far East.























Source: Clarkson Research Services