23rd January 2015 CONDENSATE EXPORTS

In December the Obama administration issued guidance on the legalities of exporting condensate from the USA, a further step towards easing a 40 year old ban on ‘crude’ oil exports. The US Department of Commerce ruling states that “for liquid hydrocarbons to be classified as petroleum products, there must be material processing through a crude oil distillation tower. If there is no processing in the distillation tower, or the processing is de minimis, the liquid hydrocarbons will not qualify as petroleum products.” Such a ruling is the first attempt by the US Government to clarify what is required to export condensates. Between July and October approximately 15,000 b/d had been exported, with spot fixtures indicating similar levels in November and December. However, this ruling potentially paves the way for a significant increase in export volumes. Some industry experts suggest that up to 1 million b/d could be exported by the end of 2015, however it is questionable whether export infrastructure could handle such volumes. Furthermore, domestic demand from condensate splitters will inevitably soak up supply, limiting the actual export volumes. For US producers the news will come as a welcome boost at a time where crashing oil prices are threatening their profitability. For global producers many will question whether the world really needs condensate from the US.

So how will this affect the tanker market? Taking aside Canada, which is already exempt from the export ban, all additional exports will be seaborne, in theory boosting tanker demand. However, is this increase in demand likely to be at the expense of product exports? The answer is likely to hinge on a number of factors. US refiners have access to ample supplies of crude and taking relatively small volumes of condensate out of the

market is unlikely to impact upon the volume of products produced. If refining throughputs were to be negatively impacted, then of course the benefit to the overall tanker market might be neutralised. Additionally, with interest from Asian buyers keen to diversify supplies, new relatively long haul trade opportunities could evolve. On the assumption that condensate exports do not displace product exports, owners stand to benefit from increased demand. Estimates as to how much condensate could be exported vary widely - between

0.2 and 1 million b/d by the end of 2015, with capacity constraints and demand from splitters being main limiting factors. It is currently unclear what type of tanker will benefit the most as condensate can be considered both a clean and dirty cargo. However initial export fixtures show a preference for Panamax/LR1 and Aframax/LR2 tankers, with most fixtures reported on ships trading in the dirty market.

CRUDE

Middle East_________________________ The VLCCs have seen plenty of back and forth this week as both parties try to settle the argument of where this market is settling. The week finishes at a stalemate of 280 x w 38.5 west and 270 x ws 68 to the East, with a sneaking suspicion that Charterers might gain the upper hand next week. Suezmaxes are a more predictable entity with plenty of tonnage in front of Charterers to allow them to remain in control this week and in the short term with 140 x ws 45 West and 130 x ws 85 East. Aframaxes have been busy in the Far East and steady in the AG to leave the week finishing at around 80 x ws 112.5 for AG/East with a sneaking suspicion of possible gains next week. West Africa_________________________ Suezmaxes tried to beat the steady drum for as long as they could to keep the market going, but they were going to eventually miss a beat as enquiry faltered and with tonnage building it was only a matter of time before we saw rates take a hit finishing at 130 x ws 80 for US Gulf discharge and similar for Eastern destinations. The VLCCs have been feeding on replacement scraps this week, with nothing off natural dates to truly test the water. However, with a predicted weaker AG market anticipated, if we are to see this happen next week, we shall see rates slightly softer with an expectation of 260 x ws 65 WAfr/China being likely. Mediterranean_____________________ The Aframax market picked up the reins from last week and galloped further forwards. Aided by a distressed Libyan cargo fixing at 80 by ws 165, Owners took heart and pushed for higher than last. Enquiry in the Med and Black Sea continued to be quoted, and this coupled with replacement business due to weather delays and ullage problems lead to rates reaching the mid ws 140's for Cross Med and Black Sea to Med voyages.

A natural ceiling then was created by part cargo opportunities and it seems rates are trapped here for now. Suezmaxes could have only wished for a similar set of steady circumstances, but a lean period has seen rates fall dramatically from what was seen this time last week. Owners will hope for the February programme to show more positivity, but the damage has already been done with Black Sea/Mediterranean finishing at 140 x ws 82.5. Caribbean_________________________ It only took a couple of days of quiet for the nerves to set in on the Aframaxes this week, but an end of week rally has seen some composure restored with rates finishing at 70 x ws 137.5 for Caribbean/US Gulf. A lean mean tonnage list on the VLCCs this week has seen Charterers tread very carefully and they will continue on the backfoot for a while yet with $7.7m for voyages Singapore expected. North Sea___________________________ It has been a week of realignment for Aframaxes in the North as rates collapsed in the Baltic, and North Sea continued to soften. The main factors in the Baltic were the early February maintenance, this gap proved enough to build up the ice tonnage and the inevitable result saw the Baltic/ UKC route, which started the week 100,000 tonnes by ws 167.5 end up 100,000 tonnes by ws 120. It has been a largely quiet week for Cross North Sea due to the vast amount of VLCC activity out of Hound Point taking roughly 12 Aframax stems out of the market in January and early February. The rate started the week 80,000 tonnes by ws 127.5 and last done was seen 80,000 by ws122.5, however the pressure from the Baltic and the lack of any real activity should see rates fall below this. The VLCCs in the North Sea are remarkably sparse and those fortunate enough to find a unit in the area will likely have to face no less than around $6.4m for Rotterdam to Singapore.

CLEAN PRODUCTS East busy, while West has been very quiet

East______________________________LR2s in the East have continued to buzz as activity levels stayed high and rates bounced back some 10 points in the last 2 days. Meantime LR1s are seeing less longhaul business leading to a slight decline through the week. 75,000 mt Naphtha AG/Japan is back now to ws 90 and looking firmer, with 90,000 mt Jet AG/UKC up to $2.50 m. 55,000 mt Naphtha AG/Japan is now down to ws 112.5 and holding steady, whilst 65,000 mt jet AG/UKC is standing at £2 m. MRs have been resurgent this week with the market really picking up. As usual TC12 seems immune to the rest of the middle market firming; it remains rooted at ws 122.5-125. East Africa has been talked up all week and ws 200 is on subs on a distress cargo, realistically the market is slightly less than this around ws 185-190. AG to UKC has been stable for the majority of the week, with $1.65 m on subs, however as high as $1.8 m is now being talked as next done. The Cross-AG market is very firm, as high as $370k is on subs for Kwt/UAE and LR1s are fixing at over $400k. The Red Sea runs are being concluded at $825k. With a tight position list, the firm market is expected to continue into next week. There has been a bit more activity this week for the MRs in North Asia towards the end of this week; rates are not notably rising yet but sentiment is at least firming and the initial signs are good for owners. $430k should be the going rate for MR Korea/Singapore for now, but most Owners are talking as though next week should be better - time will tell if it is just a lot of hot air. The LR1s have been less busy, and rates are struggling to get off the ground for the time being with $525k being the current going level for Korea/Singapore. LR2s are at $550k levels for Korea/Singapore, but with Middle East firming quickly, rates may well see a turn for the better next week, as is the opinion of most Owners. The Singapore region is looking a much nicer playground for MR Owners at the end of this week, mainly because of the firming we’ve seen in the AG-WCI market, and many ships are now being drawn away to join the party - which leaves tighter tonnage in Singapore. Also, the emergence of a fairly prompt Singapore/Australia market quote may well help to rally owners rate ideas; last done for this route is 30kt x ws 175 but these levels look set to rise.

Mediterranean____________________ There has been a change of sentiment in the TC6 market this week. A slow down in fresh enquiry saw Owners resolve tested and for the first time since mid Q4 the Cross Med and Black Sea handy market experienced a softening for spot freight and a significant backwardation in TC6 paper. Today we are calling Cross Med 30 x ws 205-210 outlook remains soft, whilst for Black Sea Loading around 30 x ws 210. A decent amount of enquiry for the MRs X-Med has cleared out the list , however the MR positions have looked long and with TC2 now trading at around 37 x ws 130, expect TA to be arranged at these levels. Longhaul options need testing but Med-Red Sea MRs have fixed around $1-1.05 million for Jeddah-Gizan, consider + 100k for the AG, and WAfr 37 x ws 150 but needs testing. UK Continent_____________________ The slowest week for a long time across all sectors on the UK Continent this week. Severe lack of enquiry from both sides of the Atlantic see's a big build in tonnage, and TC2 freight has dropped to 37 x ws 130 at time of writing. On the back of this Cont/WAfr trade (virtually non-existent) is now trading 37 x ws 150 levels. Handy Baltic/UKC liftings have also seen a tumble in freight price - now fixing 30 x ws 210 levels for ice class tonnage and flexi's largely untested pricing 22 x ws 250. LR1s have been equally slow all week and naturally there will be pressure on last done rates of ws 140 basis 60kt. LR2s started slow although a trickle of enquiry keeps the list ticking over, rates starting to react with ideas now around $2.8 m loading X-Cont/ Japan.

Caribbean________________________ Another slow week in the US as rates take another hit. Europe's expanding inventory of diesel is quelling demand from US refineries and enquiry on TC14 has slowed completely, with rates now falling to 38 x ws 80. With TC2 also very quiet, lists are likely to grow. US LR1 activity equally quiet, 60 x ws 75-80 now the conference rate although needs testing.

DIRTY PRODUCTS

Handy____________________________ A week of contrasting markets has passed, with the Continent market only building momentum from last week, unlike the Mediterranean where rates are holding on by the skin of their teeth. In the North we have seen a sustained pressure on tonnage lists, with fresh tonnage being picked off just as quickly as they appear. Rates held for the beginning of the week, but it seems now finally some positive movement has occurred, and pushing into Week 5, the potential for this to continue is prevalent. Charterers looking for the next available tonnage may have to be dependent on West Med/Gibraltar positions. The Mediterranean found itself relying on Cross-Med voyages for employment, with a lack of the expected end month Black Sea stems. The market is there to be tested which has caused some vessels looking for work shifting their gaze to the Continent where reports of a number of Cont/Med voyages existed; the ballast then looking acceptable. Heading into Monday we shall expect to see an increase in Black Sea activity, with perhaps charterers getting in their first being able to dictate more; a spread of rates fixing will be likely. MR______________________________ An up and down week for the MRs with much potential eventually falling by the wayside by Friday and larger handy stems still being the menu of the week. A glut of interest on Tuesday due to

Aframax stems being split caused a hike in rates, but as subject time was due, Afras were the chosen vessel and MRs found themselves looking for employment again. As we look into next week, ground has not been lost nor gained, and a full 45kt stem will be sought after. The Continent has managed to keep tonnage moving with the continual stems out of Brofjorden, and with many cargoes ending up Canaries/West Med direction, the ballast back up for owners is ticking many boxes. Panamax_________________________ This week kicked off with a busy Monday in the Northwest Europe and Mediterranean markets; where activity was mainly driven by the realisation we were looking at very short tonnage list this side of the Atlantic. Adding to this bad weather and the uncertainty of many vessels in the USG/Caribs markets, meant charterers with firm stems from this side we’re looking a little more ahead than usual, resulting by the end of this week the majority of firm tonnage being fixed. Owners have the upper hand in this market at present with any firm positions ballasting this way being hot property, although with dates being fixed early, how much more is still to be covered is the question.

RM/SH/JD/OD/LHT

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wk on wk Jan Last Dec FFAchange 22nd Week 18th Q1 15

TD3 VLCC AG-Japan -0 69 70 78 55TD20 Suezmax WAF-UKC -4 88 92 88 72TD7 Aframax N.Sea-UKC -3 126 129 121 108

wk on wk Jan Last Dec FFAchange 22nd Week 18th Q1 15

TD3 VLCC AG-Japan -1,500 82,750 84,250 96,500 57,500TD20 Suezmax WAF-UKC -3,500 50,000 53,500 47,750 48,000TD7 Aframax N.Sea-UKC -3,250 50,750 54,000 44,250 36,000

wk on wk Jan Last Dec FFAchange 22nd Week 18th Q1 15

TC1 LR2 AG-Japan +3 90 88 99TC2 MR - west UKC-USAC -18 129 147 187 104TC5 LR1 AG-Japan +0 121 121 118 108TC7 MR - east Singapore-EC Aus -1 175 176 180

wk on wk Jan Last Dec FFAchange 22nd Week 18th Q1 15

TC1 LR2 AG-Japan +500 25,000 24,500 28,500TC2 MR - west UKC-USAC -4,250 19,250 23,500 31,250 13,000TC5 LR1 AG-Japan -500 26,750 27,250 25,250 22,250TC7 MR - east Singapore-EC Aus -250 22,250 22,500 22,000

LQM Bunker Price (Rotterdam HSFO 380) +1 239 238 307.5LQM Bunker Price (Fujairah 380 HSFO) +15 293 278 330LQM Bunker Price (Singapore 380 HSFO) -2 280 282 334

(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)

All Spot rates quoted in worldscale f lat rates at the time.