The impact of low oil prices on the maritime industry : with focus on oil tanker sector
Date of Issue2016-05-16
School of Civil and Environmental Engineering
The dramatic decline of oil prices, from over $110 per barrel in June 2014 to less than $30 in February 2016, has exerted great impact on global economy. The tanker shipping market, as a major part of the commodity trading chain, has experienced significant changes in various aspects. As an oil tanker owner/ operator, the most upfront impact was observed in reduced bunker costs, which usually accounts for around 70% of vessel’s voyage costs. Higher import volume generated by countries like China, together with a better refinery margin and increased ton-mile demand has pulled up freight rates significantly for both crude and product carriers. Shortage of shore tanks and other storage facilities has led to more shippers turning to tankers for storage of their cargo, generating more demand and increasing tanker earnings even further. As a result, tanker asset value has increased significantly under the strong market, and with the possibility of freight going even higher, many oil majors are under a lot of pressure, leading to higher activity of freight hedging and a tanker futures market boom. In addition, low oil prices have also contributed to fewer oil tanker hijackings, as it is now less profitable to carry out such risky attacks. Although the current market remains strong, it is uncertain what lies ahead due to high volatility of oil prices as well as the shipping market. As a result, many tanker owners/operators start to adjust their current strategies or implement new methods to secure best results. Companies start to be more cautious when making decisions on bunker hedging, and better planning of routeing and vessel voyages are being more emphasized as well. Some companies also start to adjust their fleet, through placing new orders or selling part of their tonnage, based on their perceptions about future market trends. More importantly, some players begin to prepare themselves for the potential downturn with longer-term planning and stronger financials. All in all, it is still uncertain whether this tanker market heyday will last for another year or two. Based on the slowing down in demand growth and slightly increased tonnage, many believe that the golden days have passed, but with luck the freight could remain healthy for another two years. However, with the political tensions between oil producing countries, the future trend of oil prices remains uncertain, hence the same can be said for the tanker market. The market sentiment at current stage remains diverse and every company is doing what is best for them based on their own perceptions. This topic is of great interest to me because it covers the most significant factor that is affecting shipping markets right now – the oil prices. Through this project, I have gained a better understanding about the shipping market mechanisms, the tanker segment as well as the oil industry.
Final Year Project (FYP)
Nanyang Technological University