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9 th January 2015 INTO THE UNKNOWN? There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know. Donald Rumsfeld Following our last weekly report providing a brief synopsis of events affecting the tanker market in 2014, it is perhaps worth taking a look at some events which could shape 2015. Right away we would have to start off with the new maximum sulphur limits introduced into the ECAs from January 1 st . It is far too early to see the impact for owners/charterers in terms of operational problems; however the decline in bunker prices has at least softened the blow in the short term. We also expect to see the Ballast Water Management Convention ratified (and implemented 12 months later)at some stage during the year. This convention requires just one moderate sized flag state to sign off the code which will compel owners to invest in expensive treatment systems. Several flag states are known to be keen to sign up to the convention, but are reluctant to be the one to tip the balance. 2015 should also see the final few single-hull tankers taken out of trade once and for all. While very few are still trading in the conventional sense, mostly in the MR sector and below, this could have an influence on scrapping levels. Of course overall crude tanker supply growth slowed considerably during 2014 on the back of low ordering between 2011 and the 1 st half of 2013 with the exception of Suezmax tonnage. As a consequence the crude tanker delivery profile for this year is just 50 units (10.6M/dwt). Conversely orders placed for product tankers over the same period will explode rapidly into the clean market during 2015 with just shy of 200 orders (12M/dwt) scheduled for delivery. As with 2013, last year many sectors of the tanker market finished with a flourish. The difference between this year and last is so far that we haven’t seen a proliferation of ordering buoyed by the improvement in the freight market. Investment, for the time being, appears to have largely dried up which for most, must be viewed as good news. OPEC’s decision not to cut production may have had some influence in this area and speculation about how this decision will play out ahead of the next scheduled meeting in June remains rife. The low oil price can be viewed as a double-edged sword, stimulating oil demand but creating downwards pressure in terms of oil production. The oil contango has steeped significantly over the last few days and many protagonists are currently assessing their position ready to take advantage of the situation. Also, any changes to US/Canadian policy on crude exports will also stimulate the market and recent changes in condensate exports legislation may be the first step to achieving this. Finally we make no apologies for using again a famous Donald Rumsfeld quote to open our report which we believe to be apt to describe events as we enter into 2015.

9 January 2015 INTO THE UNKNOWN? - The MediTelegraph · 9th January 2015 INTO THE UNKNOWN? There are known knowns. These are things we know that we know. There are known unknowns

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9th January 2015 INTO THE UNKNOWN?

There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know. Donald Rumsfeld

Following our last weekly report providing a brief synopsis of events affecting the tanker market in 2014, it is perhaps worth taking a look at some events which could shape 2015. Right away we would have to start off with the new maximum sulphur limits introduced into the ECAs from January 1st. It is far too early to see the impact for owners/charterers in terms of operational problems; however the decline in bunker prices has at least softened the blow in the short term. We also expect to see the Ballast Water Management Convention ratified (and implemented 12 months later)at some stage during the year. This convention requires just one moderate sized flag state to sign off the code which will compel owners to invest in expensive treatment systems. Several flag states are known to be keen to sign up to the convention, but are reluctant to be the one to tip the balance. 2015 should also see the final few single-hull tankers taken out of trade once and for all. While very few are still trading in the conventional sense, mostly in the MR sector and below, this could have an influence on scrapping levels.

Of course overall crude tanker supply growth slowed considerably during 2014 on the back of low ordering between 2011 and the 1st half of 2013 with the exception of Suezmax tonnage. As a consequence the crude tanker delivery profile for this year is just 50 units (10.6M/dwt). Conversely orders placed for product tankers over the same period will explode rapidly into the clean market during 2015 with just shy of 200 orders (12M/dwt) scheduled for delivery. As with 2013, last year

many sectors of the tanker market finished with a flourish. The difference between this year and last is so far that we haven’t seen a proliferation of ordering buoyed by the improvement in the freight market. Investment, for the time being, appears to have largely dried up which for most, must be viewed as good news. OPEC’s decision not to cut production may have had some influence in this area and speculation about how this decision will play out ahead of the next scheduled meeting in June remains rife. The low oil price can be viewed as a double-edged sword, stimulating oil demand but creating downwards pressure in terms of oil production. The oil contango has steeped significantly over the last few days and many protagonists are currently assessing their position ready to take advantage of the situation. Also, any changes to US/Canadian policy on crude exports will also stimulate the market and recent changes in condensate exports legislation may be the first step to achieving this. Finally we make no apologies for using again a famous Donald Rumsfeld quote to open our report which we believe to be apt to describe events as we enter into 2015.

CRUDE

Middle East_________________________ VLCC Charterers had Owners on the run up to, and through, the Christmas period, but then shopped in concentrated enough numbers to allow for a market U-turn, and a steady upward ramp into the New Year, with further upward pressure threatening as we enter the final phase of the January programme. Further, the crude price Contango has entered 'green light' territory to make storage economically viable for traders, and already a basketful of period deals have been concluded. Currently, rates stand at around ws 70 to the East with high 30’s paid to the West. Suezmaxes had a calmer time of it and broadly retained an unchanging front over the period.130,000 to the East moves at ws 92.5 -ish with West runs operating in the mid ws 40’s. Aframaxes dipped initially, but regained to 80,000 by ws 105 to Singapore, and should inflate further over the coming week. West Africa_________________________ Suezmaxes had a holiday boost to as high as 130,000 by an average ws 120+ but are now holding a more defensive position at ws 90/92.5 to US Gulf, and only a little better to Europe. There is resistance to further falls, but Owners do need more enquiry to make sure. VLCCs tracked Middle East fortunes down, and then up again, and were further fortified by the rash of fixing within the general Atlantic zone. Rates now stand in the high ws 60’s to the East, and close to US$5 million from Angola to West Coast India. Mediterranean_____________________ Aframaxes had a fairly grim time of it, hovering around the ws 90 mark X - Med, but we are now moving through a busier phase, and Owners will be at least trying to add a bit of fat into next week. Suezmaxes found plenty of festive spirit, and rates up to 140,000 by ws 120 from the Black Sea to European destinations, but the Russian holidays took a little shine off, and the market eased to around ws 105 in consequence.

A busier week to come perhaps and the possibility then of some regained territory. Eastern runs occasionally made sense too with US$5.25 million the consensus for Black Sea to South China. Caribbean_________________________ Aframaxes started sluggish, but jumped sharply into the New Year with as high as 70,000 by ws 160 recorded for an upcoast run as things busied. Now, it’s quieter, and less finely balanced, and rates are back into the ws 130’s with further deterioration on the cards. VLCCs fell off somewhat to $6.8 million to Singapore, but regained composure as the whole Atlantic region ignited, and Contango opportunities also appeared. Rates have now moved again above $7 million with $6.00 becoming the bottom line to West Coast India. North Sea___________________________ Nasty weather here, and therefore delays, and support for rates. Aframaxes firmed to 80,000 by ws 125+ X-UK Cont with 100,000 by ws 150 payable ex Baltic with ice class tonnage in high demand. Suezmaxes saw little to shout about but a deal done at 135,000 by ws 75 Baltic/trans-Atlantic would be fairly reflective of the average buy/sell situation prevailing. VLCCs became much more popular on a widened 'arb' to the East - fuel oil runs to Singapore pushed towards $5.6 million, whilst $7 million was seen for Forties barrels to South Korea. Tonnage remains tight, and rates will continue to hold - or even build further.

CLEAN PRODUCTS

East______________________________ LRs in the Middle East have this week been a tale of contrasts. LR2s picked up the baton with more fixtures done than have been seen in a very long time. But it was needed and rates have barely moved due to the length of the tonnage list we started with. 75,000 mt naphtha AG/Japan remains around ws 90 and 90,000 mt Jet AG/UKC at $2.50 million. LR1s have been quiet and rates are starting to drop off. 55,000 mt naphtha AG/Japan is now at ws 120 and 65,000 mt jet AG/UKC is at $2.15 million.

MRs have been active this week, with a decent level of enquiry and although the list remains tight, the fizz we have seen over the last few weeks has dissipated. TC12 runs are available 35 x ws 125, East Africa has been done a few times 35 x ws 172.5, but if pushed ws 170 maybe there from certain Owners. The Jet runs to UK Continent remain around $1.60 -1.65 million mark. Shorthauls continue to be the bread winner for Owners, even though they are not as heated as they were. Kuwait/UAE is fixing at $350,000, but these runs are coming under slightly more pressure. Red Sea runs are fixing at $800,000 basis Gizan. Overall, it has been a painful week for MR Owners with tonnage in North Asia. Cargo volume has

continued to lag and we have seen a couple of fixtures that highlight Owners’ weaker sentiment – such as $355kt for North China/Singapore. MR Korea/Singapore was fixed at $435kt early this week, and now even bullish Owners will concede that market levels are around $430kt. In contrast, LR1s have been a lot more active, with some replacement requirements off the prompt window, along with a decent amount of cargoes emerging off 20 - 25 January dates, the market has nudged its was up to $575-600kt levels Korea/Singapore (date dependent). LR2s have also been fractionally busier and should fix at around $625kt for Korea/Singapore. The difference between the MRs and LRs in North Asia is notable now, and you would expect them to start to gravitate towards each other next week. Given the weakness of the MR market we could well see the LRs come off a little. The Singapore MR market has had a less eventful but stable week, where enquiry has been sufficient to hold the market at its current fixing levels at a fraction below 30kt x ws 180 for Singapore/Australia.

DIRTY PRODUCTS

Handy____________________________ Where do we go from here, the beginning of the year couldn't have started in a more different manner when comparing the handysize Continent and Mediterranean markets. The Continent has struggled to get to its feet so far in 2015 with little 30kt stem inquiry combined with softening rates since the previous weeks. Although this said, it is still early to say whether this market is sliding or just hasn't fully woken up yet. Next week with most nations back to work, in particular Russia, this should paint a more honest picture. The Mediterranean has started with a much busier vibe, especially out of the Black Sea. We expect this momentum to carry through to the end of the month which should see the market firm. It is now apparent that the Black Sea is running solo and can no longer be taken into account when freighting other Mediterranean regions as there has been too much inquiry. We have witnessed tonnage ballast from West Med regions to capitalise on this rising market creating a spread in fixing levels.

MR______________________________ Medium Range tonnage hasn't really been tested yet from most Charterers point of view as far as the Continent is concerned, as here also activity mainly fails to present. This said, in the North where tonnage remains tight, Owners will be resilient with their rate ideas as more 45kt stems come to fruition next week. In the Med, some of the healthy inquiry out of the Black Sea has fed some of the MR's but majority of Owners have been forced to accept smaller 30kt stems. Next week we may well see those left able to capitalise with well positioned vessels. Panamax_________________________ The activity for this week peaked mid-way through with the Continent firmly taking the leading role where a number of stems came to market. With a wide range of fixing levels being achieved in this region which reflects in part through ships open positions, distorting bench mark levels. The Med on the other hand seems to remain flat with ws 130 being fixed a couple of times as natural tonnage beings to see itineraries firm.

PAT/JH/JW/DP/SLK Produced by Gibson Consultancy and Research

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wk on wk Jan Last Last FFAchange 8th Week Month Q1 15

TD3 VLCC AG-Japan +8 69 61 73 54TD20 Suezmax WAF-UKC -14 94 108 75 76TD7 Aframax N.Sea-UKC -1 121 123 105 92

wk on wk Jan Last Last FFAchange 8th Week Month Q1 15

TD3 VLCC AG-Japan +18,250 83,250 65,000 84,000 57,000TD20 Suezmax WAF-UKC -9,500 54,000 63,500 36,000 50,000TD7 Aframax N.Sea-UKC -500 46,500 47,000 30,750 23,000

wk on wk Jan Last Last FFAchange 8th Week Month Q1 15

TC1 LR2 AG-Japan -3 93 95 100TC2 MR - west UKC-USAC -37 148 185 205 105TC5 LR1 AG-Japan +0 120 120 111 100TC7 MR - east Singapore-EC Aus -2 178 180 179

wk on wk Jan Last Last FFAchange 8th Week Month Q1 15

TC1 LR2 AG-Japan +500 26,750 26,250 26,750TC2 MR - west UKC-USAC -5,250 23,250 28,500 34,500 13,000TC5 LR1 AG-Japan +1,500 27,000 25,500 21,250 20,000TC7 MR - east Singapore-EC Aus +750 22,500 21,750 20,500

LQM Bunker Price (Rotterdam HSFO 380) -25 248 272.5 332.5LQM Bunker Price (Fujairah 380 HSFO) -38 280 317.5 377.5LQM Bunker Price (Singapore 380 HSFO) -39 281 319 375

All Spot rates quoted in worldscale flat rates at the time.

(a) based on round voyage economics at 'market' speed

Dirty Tanker Spot Market Developments - Spot Worldscale

Dirty Tanker Spot Market Developments - $/day tce (a)

Clean Tanker Spot Market Developments - Spot Worldscale

Clean Tanker Spot Market Developments - $/day tce (a)