12 th June 2015 OPEC UPS THE ANTE!

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1 OPEC UPS THE ANTE! 12 th June 2015 OPEC's announcement that it would maintain crude production came as little surprise to the global oil markets. A specific statement that its production target of 30 million b/d would remain unchanged failed to garner much of a market reaction and was largely perceived as little more than a token gesture to Iran, one of the most vocal opponents of the de facto strategy of defending market share at the expense of prices. The group has not adhered to is production target for the past 12 months and few expect that to change any time soon. It therefore seems apparent that OPEC Middle East crude production - a key driver of crude tanker demand, will remain robust for the balance of 2015 at least. Despite Iran's stance on OPEC's emergent strategy, its ministers have been clear that Iran intends to restore exports to pre sanction levels if restrictions are successfully lifted. Iranian ministers have confidently expressed that production could increase by 500,000 b/d soon after sanctions are unwound and by another 500,000 b/d within 6 months. Whilst some market participants believe Iran is overstating its capabilities, the approx. 38 million barrels of Iranian oil in floating storage, in addition to shore based stocks could quickly add supply to the market. Nevertheless talks between the West and Iran are due to conclude this month, increasing the prospect of more Iranian barrels, even if the absolute volumes are questionable. Even if these barrels do materialise, there is little indication that other OPEC members would be prepared to sacrifice their own share in order to accommodate Iran s ambitions. Iraq too has aspirations to increase exports despite continued turmoil in the country. Having recently split Basrah Light into two grades in order to stabilise quality, Iraq now has more flexibility to boost production and exports of Basrah Heavy. However logistical problems remain. Loading delays continue to persist and Basrah now requires tankers loading heavy crude to carry cranes with a minimum safe working load (SWL) of 20 tonnes, ruling out around three quarters of the trading Suezmax fleet from loading the heavier grade, allowing suitable vessels to command premiums. Ultimately there is more Middle East OPEC crude in the pipeline, although barriers, whether political, logistical or seasonal remain. Taking Iran out of the equation, higher OPEC production over the coming months may not translate into higher tanker demand as domestic air conditioning use peaks throughout the summer months whilst the Yanbu and Ruwais refineries also continue to consume regional supplies. However, global oil demand is rising faster than initially anticipated with the IEA s latest report projecting 2015 demand growth of 1.4 million b/d, double the growth witnessed in 2014, providing a further incentive for OPEC members to continue to produce and subsequently supporting tanker earnings for the balance of 2015.

2 CRUDE Middle East VLCC Charterers wasted no time in driving through the remainder of the relatively swollen June programme - a volume that would, ordinarily, have allowed for a market push but with availability always 'easy' enough to prevent any pinch-points, Owners failed to budge rates from their previous low ws 60 East, mid ws 30s West, mark, and they ll be hoping for a bright start to the July campaign to give them another opportunity. With Ramadan commencing late next week, however, that is far from a certainty. Suezmaxes failed to maintain the highs of last week upon a less frenetic pace,and adequate availability. Rates tracked lower to mid ws 80s East and the mid ws 40s to the West accordingly, and will continue rather flatline for the near term, at least. Aframaxes kept their 80,000 by ws 140 plate spinning to Singapore, but levels of enquiry fell short of providing enough juice to fire rates to new highs, and that should remain the case into next week too. West Africa Suezmaxes came under early pressure as tonnage lists built, and Charterers adopted a relaxed attitude. Eventually, once rates had just breached the ws 80 mark, Owners put up stouter resistance, and that then provoked enough interest to allow rates to inflate slightly to ws 82.5 USGulf and ws 85 to Europe, but more momentum is needed for that trend to be maintained. VLCCs continued in 'conference' mode as Eastern ballasters merely asked for similar values to the unchanged AGulf zone. Rates to the East stayed in the very low ws 60s with $4.5 million paid for a specimen run to West Coast India. Mediterranean Aframaxes had already threatened higher, and a lively start to the week quickly converted into cross Med rates ramping up to above ws 140. Thereafter, Charterers took their foot off the gas, and inevitably rates began to crumble into the ws 130s, with lower values on the cards. Suezmaxes did what they had to and managed to just about hold on to 140,000 by ws 95/97.5 from the Black Sea to European destinations over the slow-ish patch. With West Africa a little more robust, and with July programmes expected early next week, there is some degree of hope/expectation that their playing field will be more favourable then. Caribbean Aframaxes re-started unchanged, began to wobble mid-week, but then ended more strongly with rates at a solid 70 x ws 140 base upcoast, and further gains possible if the activity continues. VLCCs didn t yield great volumes, but early tonnage remains tight, and rate levels maintain at around $7.3 million to Singapore, and $6.3 million to West Coast India for now, though more forward dates may start to come a touch under pressure...a touch. North Sea As in the Med - Aframaxes commenced proceedings in lively form, with appropriately spiky rates, but then Charterers held back and the inevitable correction got underway. 80,000 cross UKCont now eases to ws 130 with 100,000 by ws 110 available X-Baltic, and further deterioration is anticipated for next week. Suezmaxes enjoyed a rare burst of fuel oil activity transatlantic, but the going 135,000 by ws 67.5 for those runs was hardly anything to shout about. VLCCs in the area got the odd knock for crude oil bbls from Hound Point to South Korea at rates of up to $7.65 million, but the fuel oil 'Arb' remained tightly shut to Singapore - bids at $4.5 million against offers of no less than $6.00 million...no dice.

3 East MRs this week have been buoyant with rates rising across all routes. TC12 has firmed with ws 140 on subjects off natural fixing dates and ws 145 off prompt dates, this is a point rise over the week. EAfr has been slightly slower, only seeing a 2.5 point rise to ws 182.5, however finishes the week poised to firm further. AG to UKCont has fixed and a vessel is on subjects $1.675 million at the time of writing. The main gains have been seen on the shorthauls, cross AG rising to $380,000 basis Kuwait/UAE and $360,000 basis Jubail to UAE. Red Sea runs are firm with $ on subjects basis Gizan. The tonnage remains very tight and rates look set to remain firm for the near future. A quieter week on LR1s this week yet LR2s have continued to strike ahead. After some 10 days of limited enquiry LR1s have seen rates drop back with 55,000 mt Naphtha AG/Japan down to ws 140 and 65,000 mt Jet AG/UKCont down to $2.375 million. We could easily see more come off these levels with a mounting tonnage list going forward. By contract LR2s have seen more business with 75,000 mt Naphtha AG/Japan up to ws today and 90,000 mt Jet AG/UKCont confirmed at $2.95 million. This trend is likely to continue into next week. The MRs in North Asia have generally remained stable this week. Owners started the week with high hopes, but unfortunately cargo volume has not really got going, and notably we have not seen the usual amount of volume heading down to Australia from the North. There is a school of thought that things are now getting busier off end month to early July, but for now Korea/Singapore should fix at $ ,000. In Singapore, MR tonnage is tight in the early position, and there has been a multitude of late running ships due to berthing delays. We have seen some decent numbers paid for prompt requirements and Singapore/Australia should now fetch around 30 kt x ws , however there are some ballasting ships approaching for end June, so cargo volume needs to CLEAN PRODUCTS stay consistent to prevent rate slippage next week. LR1s have been quiet in the Far East, and Korea/Singapore should fix at $ ,000. LR2s have had a busier week, and their strength in the Middle East has helped along the backhaul runs too - Korea/Singapore should fix at $ ,000 levels, date dependant. Mediterranean Another strong week in the Mediterranean, with positions tight for Handys and MRs alike. There has been steady demand for the Handys and due to uncertain itineraries, fixed in the 30 x ws bracket with the Black Sea paying closer to 30 x ws levels due to steady demand. MRs for Med loading thinned out by mid-week due to a number of ships fixing from the UKCont, and Med loading cargoes considered in line with TC2 37kt x ws and 37 x ws 180 to West Africa. Heading East a few ships were confirmed around $ million level to Red Sea + 100k AG UK Continent A steady week for TC2 as a stream of cargoes against a balanced tonnage lists kept the market supported at ws levels basis 37,000 mts of Mogas. Not many questions to West Africa for MRs, Owners ideas remain at an additional points above transatlantic runs. The LR1s enjoyed some activity with several enquiries tightening up the list, and runs staying West ended up at ws basis 60kt. LR2s have also had several enquires both East and West of Suez which gave Owners further choices leaving rates up at $2.9 million loading X-Continent with Naptha heading out to the Far East. The shorthaul market in North West Europe has remained buoyant with levels sliding sideways at ws basis 30kt. The Flexis doing shuttle runs on the cross Continent market continue to achieve ws 195 basis 22kt.

4 DIRTY PRODUCTS Handy In both the Continent and the Med Owners can reflect upon a week of achievement where both regions have seen increment levied on the back of what has been an extremely busy period. In the North the tonnage situation was known to those following it, and being sparse in availability the activity which subsequently followed left Owners well and truly in the driving seat. Subsequently a new milestone of ws 150 was accomplished! In the Med a similar tune rang out where a few days of collective activity decimated the tonnage list from virtually all firm availability. Typically where both the Med and Black Sea were active in tandem, Owners are usually able to benefit; and this market is no exception. MR Surrounding markets have rubbed off onto MR's this week with Charterers making the most of the bigger intakes by moving full size stems. Owners were able to make the most of such conditions where tests of the market strength proved favourable. Sentiment remains firm in this sector, particularly in the continent where we are now having to looking towards end month dates as a fixing window. Elsewhere with the Mediterranean, with the Handies spiking, Owners on the larger sizes didn't find it hard to cover their tonnage as inquiry spilled over onto this sector. Although we didn't see a great deal movement compared to the Continent, the numbers were heading in a positive direction. Panamax As we reach the end of what has been a positive week for Owners, all eyes are open in search of the next wave of available tonnage. A good amount of activity has transformed the tonnage lists this week, and at the time of writing, Charterers sit eagerly awaiting news of itineraries firming for possible targets to be chartered next. Looking ahead there remains a feeling of strength in this sector and we can therefore anticipate sentiment to roll over into the next fixing window.

5 Dirty Tanker Spot Market Developments - Spot Worldscale TD3 VLCC AG-Japan TD20 Suezmax WAF-UKC TD7 Aframax N.Sea-UKC Dirty Tanker Spot Market Developments - $/day tce (a) TD3 VLCC AG-Japan ,250 63,000 74,000 51,000 TD20 Suezmax WAF-UKC -9,250 39,500 48,750 67,750 43,250 TD7 Aframax N.Sea-UKC +9,250 65,000 55,750 26,750 37,250 Clean Tanker Spot Market Developments - Spot Worldscale TC1 LR2 AG-Japan TC2 MR - west UKC-USAC TC5 LR1 AG-Japan TC7 MR - east Singapore-EC Aus Clean Tanker Spot Market Developments - $/day tce (a) TC1 LR2 AG-Japan -2,500 35,750 38,250 26,750 TC2 MR - west UKC-USAC +1,000 23,500 22,500 21,500 22,000 TC5 LR1 AG-Japan -1,250 30,750 32,000 22,750 26,000 TC7 MR - east Singapore-EC Aus ,250 21,750 20,000 0 (a) based on round voyage economics at 'market' speed LQM Bunker Price (Rotterdam HSFO 380) LQM Bunker Price (Fujairah 380 HSFO) LQM Bunker Price (Singapore 380 HSFO) LQM Bunker Price (Rotterdam 0.1% LSFO) RNM/JH/JD/DP/LHT Produced by Gibson Consultancy and Research Visit Gibson s website at for latest market information E.A. GIBSON SHIPBROKERS LTD., AUDREY HOUSE, ELY PLACE, LONDON EC1P 1HP Switchboard Telephone: (UK) (International) [email protected]: GTKR G FACSIMILE No: BIMCOM This report has been produced for general information and is not a replacement for specific advice. While the market information is believed to be reasonably accurate, it is by its nature subject to limited audits and validations. No responsibility can be accepted for any errors or any consequences arising therefrom. No part of the report may be reproduced or circulated without our prior written approval. E.A. Gibson Shipbrokers Ltd 2015.