Dodging the Bullet
20th May 2015 14:56 GMT

Not everyone welcomed the slide in fuel prices in the second half of 2014.

In the shipping sector, the most spectacular losers were those who had hedged deals based on the belief that crude oil prices would hold above $100 a barrel.

But the falls in the final months of 2014, however unnerving for some, cushioned the bunker market and its customers from what could have been two stinging blows.

First was the shockingly abrupt departure of OW Bunker.

In the days that followed the bankruptcy, and as the extent of the losses became clear, there were warnings that bunker players would see their credit lines slashed.

It didn't seen unreasonable to suppose that some would go out of business.

In the main, that didn't happen. The fallout from the unravelling of OW Bunker has yet to run its course, but generally the market continued to function with minimum disruption.

Some players say that that was only possible as bunker prices, dragged down by softening crude oil values, meant credit lines could be scaled back without squeezing volumes.

The second blow could hardly be described as a shock. It was one of the most heavily signposted regulatory changes the marine fuel market has ever seen.

Dropping the sulphur cap for marine fuel used in the European and North American ECAs to 0.10% had been years in the planning.

Long before the January deadline there had been warnings of 'modal shifts' from maritime transport to road, rail and air. The costs of switching from low sulphur residual product to costly ECA-compliant distillate would price ship-operators out of the market.

Looking at Bunkerworld price data in June 2014, it would have been hard to argue. The Rotterdam price for marine gas oil topped $900 per metric tonne (pmt).

But by January 2015 it had fallen to around $460, making it over $100 pmt cheaper than low sulphur intermediate fuel oil (LSFO) six months before.

The price differential between IFO and distillate product was still wide, but in absolute terms, shipowners were buying ECA-compliant distillate at prices that would have undercut the LSFO bunker market five months -or even five years - before. 

Only a fool would attempt to predict what oil markets will do next. But plunging prices in the second half of 2014 gave bunker players breathing space.

They remain fearful that sulphur regulations will eventually cut the shipping industry's share of the transport market. After all, cheaper fuel also cuts the costs of shipping's competitors in the road and aviation sectors.

But so far, marine transport has not buckled under the ECA regulations. It is even possible that low prices, in absolute terms, have boosted prospects for compliance.

In the meantime, some of the wounds inflicted by the OW Bunker collapse have had time to heal. Confidence and trust, while hard to measure, have been restored. The bunker market, with a bit of help from crude oil, has proved its resilience.

This text first appeared as the 'Commentary' column in the April 2015 issue of the Bunker Bulletin, the Bunkerworld magazine.


Nick Jameson,
20th May 2015 14:56 GMT

Comments on this Blog
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