OPEC move brings relief to tankers

Opec’s quota increase should stimulate fixtures in 4Q07 after a "very weak" 3Q07, says Dahlman Rose analyst Omar Nokta. In a research note outlining the OPEC impact, Nokta said that the 0.5M bpd increase announced for November "provides some relief to tankers" but "does not come close to the 1.7M bpd that has been cut throughout the past year". The analyst believes the largest driver of recent tanker weakness is lack of refinery demand due to decreased margins. "Oil inventories have been declining the past few weeks as refiners have simply refined crude at a faster pace than it has been replenished," he noted. Nokta did cite strong potential for 2008, centred on the long-haul VLCC trade out of the Arabian Gulf – assuming International Energy Agency (IEA) demand forecasts prove correct. The IEA currently predicts a global demand increase of 2.1M bpd for next year, against non-OPEC supply growth of 1.1M bpd. This implies that OPEC, particularly Saudi Arabia, would raise production next year beyond the November increase. However, the IEA itself noted that its 2008 demand projections may not take into account the full economic impacts of the US sub-prime crisis, implying downside risk for its forecast.