Thoughts on Bunker Fuel Prices



Not a day passes without some significant events occurring in the global political scene which impact the prices of petroleum products.  In the last one week, it was the nuclear pact with Iran and another big event was Greece staying on in EU.

First of all, the agreement with Iran frees them up to offer Petroleum products in the global market without any hindrance.  This alone is expected to release at least 3 Million Barrels of crude every day.  There will be much more to come.  In addition, oversupply due to fracking and shale oil in the market and also because OPEC countries have decided not to cut back on the production, the globe is awash with crude.  We should not be surprised if the crude prices drop by another $3 or $4 or even more per barrel.  The immediate impact for the bunker industry consuming over 300 Million Tons will be a surplus in the hands of shipping companies of about $7.5 Billion.  Not all of this will happen since a lot of fuel has been hedged.  Nevertheless, a substantial money savings will be experienced by the marine industry.  Will they be tempted to buy more ships, thereby offering more space for same cargo resulting in depressing the already low freight rates? This is the big question.  That the crude prices are not likely to go up is the projection of top experts in two conferences I attended in the last two weeks.  The developments in Greece are likely to be beneficial to Greek shipping. From a Global perspective, any uncertainty and concern about the impact of Greece coming out of EU have been removed.  In any case Greek Ship-owners keep most of the money in banks outside Greece.  Their ships are also not flagged with Greece.  Therefore there is no other negative impact.

To sum up, Bunker Fuel prices will come down reducing the operational costs.  The freight rates are not likely to go up given that more ships are chasing fewer cargos.  The developments in China are also seeing a reduced demand for carriage of raw materials. However, in the long run, reduced petroleum prices are bound to place more money in the hands of all petroleum users with a few exceptions.  This would certainly incentivize economic activity resulting in production of more goods which will need more ships to carry them.  It is safe to predict that in the long term it will be beneficial to shipping.


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