Product

OSG’s product fleet totals 45 operating and newbuild vessels made up of MR and LR1 tankers that transport a wide range of refined petroleum products and chemicals globally. The Company’s investment and expansion in this market segment has been an important part of OSG’s diversification and expansion strategy in terms of markets, types of vessels traded and customers.

The commercial success of OSG’s products unit has been built on developing relationships with key customers and building a regional trading presence. Quality operations, reliable service and customer care are synonymous with the Company’s continued success.

Seven of OSG’s MRs trade in the Clean Products International Pool, a regional commercial pool of 12 vessels formed in 2006. The pool concentrates on triangulation trades in South America.

The petroleum products trade is quite different from the crude oil trade. While the crude oil trade covers refinery inputs, the petroleum products trade transports the output of refineries. Refined oil products moved in OSG product tankers include gasoline, jet fuel, diesel fuel, heating oil, kerosene, naphtha, alternative fuels, vegetable oils and unrefined products such as fuel oil.

Due to the wide variety of cargo types transported on these specialized vessels, the nature of the products trade is complex. Vessels require special coatings on cargo tanks to facilitate cleaning and to protect cargo from contamination. Cleaning operations are rigorous, particularly when switching between cargoes. Crews are required to maintain specialized certifications in order to handle a variety of product grades and frequent changeovers.

Markets
The products market is driven by the difference between demand and supply for individual product types in local or regional markets. Regulatory changes to product specifications at a local level also play a role. Additional market factors affecting product trades are:

• Arbitrage Trades. Arbitrage opportunities result from unanticipated events and structural deficiencies. Unplanned refining downtime or severe weather conditions could result in a temporary product shortage in an area, triggering the need to “pull” product supplies from other areas of the world. Structurally, deficit trades arise between areas of surplus and areas of shortages. For example, European fuel transportation requirements are more diesel-driven than the United States, which is predominantly gasoline driven.  Changes in demand dynamics, therefore, may make it more profitable for refineries to export products to areas of the world that are “short” rather than to incur downtime to reconfigure a refinery to produce a different product type.
  
  
• Growth of Export Refineries. New refineries in the Middle East and Asia are being been built specifically to export clean products worldwide.Some specifically manufacture low sulfur products (gasoline and diesel) that meet regulated product specifications in the United States and Europe.

For more information about the products market, click here.