OREANDA-NEWS. March 07, 2013. A healthy Chinese demand for crude oil, together with a looming change of supply patterns and sources for the satisfaction of this demand, are expected to have an effect on the tanker markets as well.

According to the latest weekly report from Poten & Partners, Chinese oil majors have been on a substantial buying run over the past four years, peaking at USD35bn worth of mergers and acquisitions activity in 2012 according to Dealogic.

As a result, IEA’s chief economist, Fatih Birol, was quoted in the Financial Times earlier this week saying that the country is “set to become a major producing country outside of its borders,” rivaling the domestic production of OPEC countries Kuwait and the United Arab Emirates.

Additionally, as Poten mentioned, "a desire to obtain production technology capabilities from acquisition targets, these moves come in reaction to years of a strong current account balance and domestic growth that dictates stronger demand for crude oil. While concerns about domestic credit overextension and lax regulations with respect to “shadow banking” are becoming more prevalent, the Chinese economy continues to show signs of strength. HSBC’s Manufacturing PMI number indeed came in higher again in January, and GDP growth returned to a positive trend in 2h2012. Consistent with this macroeconomic advancement, Chinese crude run growth has endured, reaching a level of almost 10.2 mbpd in December, an almost 10% yoy increase" said the analyst.

It added that "a continuation in macroeconomic strength would beget stronger demand for petroleum products, causing crude runs and crude oil imports to correspondingly increase as well. The majority of seaborne imports to China are made up of crude oil cargoes rather than refined products. Poten fixture information suggests that West African crude oil–imported volumes of which have notably declined in the United States – is in the midst of seeing its share of Chinese demand grow, finding an increasingly reliable alternative market. Meanwhile, spot fixture counts of vessels bound for China grew on the whole in much of 2012, with larger vessel classes faring particularly well" it said.

As a result, "tonne-mile demand will likewise increase under this environment. Poten forecasts tonne-mileage demand driven by Chinese oil imports to grow at an increasing rate in 2014-2015 after growing at a slightly reduced overall clip in 2013. The VLCC vessel class is expected to be the major benefactor of this growth as most of the total imports are expected to be longer-haul voyages sourced from Africa, the Arabian Gulf, and – to a lesser extent – Latin America. Pipeline projects under consideration that would provide seaborne crude export optionality from Canada have the potential to impact VLCC and Suezmax tonne-mile demand later in the decade as well", Poten noted.

It concluded by stating that "while it is an important development, the notion that macroeconomic strength in a country that is the second largest importer of crude oil is good for tonne-mile demand and therefore a bullish factor for tanker rates is nothing new. It is worth paying attention to shifting areas of origination for seaborne crude oil imports, though, as West Africa’s grabbing larger portions of growing import volumes would be a particularly welcome development for tanker owners".