In Hellenic Shipping News 28/05/2015
The shipping industry has benefited massively from the fall of oil prices, both in terms of higher demand for hiring of oil tankers, but also in terms of lower bunker costs, which equaters to a large part of a ship’s operating expenses. This has become the biggest “pillow” so far for dry bulk owners, bracing the freight market’s latest “fall from grace”. So, how will a potential oil market rebound influence the market?
According to an earlier examination of the effects of lower oil prices, undertaken by shipbroker Intermodal, “low oil prices have inevitably reduced oil rig utilization and eventually stirred things up a little as far as remaining projects are concerned. Based on data from the American Oil and Gas Reporter, in the US alone, the onshore rigs suffered a utilization reduction of 51%, which resulted in a massive shutdown of 926 rigs in just 5 months. On the offshore sector and looking at the numbers on a global scale, the utilization capacity decreased by 96 rigs (14%) in 6 months”, said the shipbroker.
Intermodal’s SnP broker, Mr. Timos Papadimitriou, added that “so, after thousands of jobs and billions of dollars are lost, where do we stand? The barrel price as of last week has reached USD 65 per barrel. Although prices have been rising during the last couple of months, there is still a lot of uncertainty as to where we are heading. Will the price continue to rise as it usually does during the summer because of the seasonal refinery demand, or it will drop back down influenced by a stronger Dollar or by the possibility that capacity is still in excess of demand. There has being a lot of speculation in regards to whether the industry is on its way to a recovery or not. Prices are often known to rise purely on speculation”.
He went to note that “the speculation in this case revolves around the fact that the prices now are in some ways favorable and promising enough to start investing – storage projects are a representative example of that. Furthermore, Asian demand increases, with China importing record quantities in April and on top of that the US driving season is near, which as usual increases the demand for fuel. So it seems that the sings for a recovery in the price of oil are there, but it is still too early to speak for a recovery, even a slow one”.
Papadimitriou then raises the various questions surrounding these developments with relation to the maritime industry, in the event of a potential increase in prices. “How will bunker prices adjust? Will the offshore industry rebound? Will tanker rates be affected or not? Bunker prices, have since February risen steadily but they are nowhere close to where they were about a year ago. If oil prices increase but keep moving within a specific range, there is no reason to expect bunker prices to increase a lot more, which is translated to fairly good news especially for the bulk sector”.
He added that “the offshore industry has suffered a significant blow during the last ten months. FPSO projects were halted and rigs were left unutilized. Nowadays we slowly see a few fixtures materialize, which could be perceived as a sign that maybe better days are ahead. But there is still a long way to go in order to see rigs being fixed to long term employment.
On the other hand, tankers have being enjoying fantastic rates since last year. These rates, which have been on an upward trend for more than a year, were initially driven by the increased cargo demand from emerging and developing countries coupled with manageable fleet sizes in the sector, and eventually boosted by the decline of oil prices. Currently, it seems that even with a further moderate recovery in the price of oil, demand seems to have enough momentum to keep rates at healthy levels thus not really weighing on wet market prospects for the short to medium term. All in all oil does impact the world trade to a big degree but the straightforward effect of its price performance might not be that straightforward after all”, he concluded.
