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Retreating bunker prices are a treat for shipowners

Retreating bunker prices are a treat for shipowners
Bunker fuel prices have been retreating over the course of this year, but the downward trend has been more apparent over the past month in line with softer crude oil prices.

Prices for WTI crude have already dipped below the $50 per barrel mark since the second half of July, hovering at around $45 per barrel in August.

The price of bunker fuel, a by-product of crude oil, has been following the bearish crude oil market with the global benchmark Singapore 380 cst indicated at $266.50 per metric tonne (pmt) on Monday, just about $3 shy of this year’s lowest price of $263 pmt seen on 6 August, according to data from Ship & Bunker.

On 1 July this year, Singapore 380 cst price was indicated at $334.50 pmt before falling 17.9% in a month’s time to $274.50 pmt on 3 August, and further sliding down to $266.50 pmt yesterday.

Shipowners have clearly benefitted from the deflated bunker market with Orient Overseas (International) Limited (OOIL) recently saying that it recorded a 38% drop in bunker costs to $329m in the first half from $529m in the previous corresponding period.

Indeed, on 11 August 2014, the price of Singapore 380 cst stood at $593.50 pmt, representing a 122.7% fall from the $266.50 pmt seen on 10 August this year, Ship & Bunker data showed.

This year, the highest recorded price was $389.50 pmt on 6 March, and the rally back then was brief, offering much relief to shipowners amidst the continuing low freight rate environment.

Apart from container carriers like OOIL benefitting from low bunker prices, earnings in the tanker shipping sector have also been strong despite dwindling Asian demand, thanks to low fuel prices.

With bunker fuel bills taking up 50% to 60% of the total cost of a VLCC voyage, the savings reaped have helped to offset recent decline in rates as tonnage requirement has dropped due to lower refinery runs in Asia and uncertainty in China’s import needs.

The immediate prospects ahead for oil prices seem to be that of a continuing soft trend following the lifting of sanctions related to Iran’s nuclear program, allowing the Middle Eastern nation to add about one million barrels of oil per day, putting further downward pressure on oil prices.

Even with fundamentals of demand-supply at play in the bunker market itself, it is hard to imagine marine fuel prices going against the direction of crude oil prices in a starkly different manner.