Nick Jameson has been reporting on the shipping and the marine fuel industry for almost twenty years. He is based in Petromedia's UK office.
Forecasting oil prices is a mug's game. Even analysing prices is a dark art.
What we do know, however, is that crude prices are less than half what they were for much of 2014 and bunker prices are at the lowest levels seen for years.
That has been a blessing for some sectors of the shipping industry. Drewry Maritime Research has suggested that it is only the fall in bunker prices that has allowed some container lines to remain profitable.
But the other side of the coin is bunker players have been deprived of revenue.
World Fuel Service's second quarter results (Q2) showed revenue down 25% year-over-year.
Aegean Marine Petroleum's Q2 revenue was also down, as were its profits.
It's tough even for the major palyers, but perhaps the biggest challenges are being faced by small to medium sized bunker firms.
Some observers worry they have failed to adjust their credit strategies to the new realities.
Credit lines set up when prices for 380 centistokes (cSt) material were above $600 per metric tonne now look ludicrously long.
Ship operators with poor payment records may be accessing unduly generous volumes of product.
All might be well if credit discipline were maintained and suppliers regularly reviewed their credit terms.
But one player complained to Platts Bunkerworld that, far from stepping up their due diligence, some suppliers were trying to outdo each in payment terms.
He quoted the operator of a coastal vessel saying: "I get a visit every week and lot of e-mails from people trying to sell me bunkers.
"They compete with each other by giving 60 or 75 or even 90 days without asking anything.
"To cap it all, that vessel owner regularly pays late, even with extended terms."
It looks as if some players are living dangerously.
And there has been no shortage of warnings for the sector as a whole.
"We see four or five examples of the next OW," Gregg Schwartz, director of strategic development at Aegean Bunkering (USA) told a recent forum. "We see a lot of smaller re-sellers coming in that aren't capitalised."
Keld Demant, CEO of Bunker Holding Group (Bunker Holding), has given similar cautions.
"If you don't have economies of scale and the necessary capital to position yourself in the best way possible, then it can become a battle that can squeeze the last drop of blood from some companies," he told an interviewer.
He suggested the fall in oil prices had afforded smaller players breathing space as it meant they needed less capital for the same amount of oil.
But he predicted the respite would be temporary and that an oil price rebound would leave them dangerously under-capitalised
Forecasts, of course, are slippery things. What is clear is that the fall in oil prices has presented bunker players with tough decisions. A return to higher prices, unfortunately, will do exactly the same.
This is an edited version of a text that first appeared in the 'Commentary' column in the Novmber 2015 issue of the Bunker Bulletin, the Platts Bunkerworld magazine.
Common sense suggests that we continue to view customers in respect of what their structure can support (capacity) and not what their needs are (requirement). This is arrived at through a number of means with some common to all and others perhaps more specific to each vendor. You can also take into account risk appetite with some being far more prepared to work the higher risk accounts for the margins therein.
Setting regular reviews and monitoring any shift in volume and performance are equally important, but let's remember a few basic points:
1. We generally set a limit based upon customer capacity, and unless committing to medium or long term contracts the 'out' is essentially the mark-to-market structure of most stems. Buy on 30-day terms and sell on 30-day terms gives you this security. It is only where selling is on extended terms such as 45, 60, 75, 90, and we even hear rumours of 120 and 180 day terms that the risk moves away from the basic back-to-back securities.
2. If doing a term sale for 3/6/12 months then the risk can be managed through appropriate hedging measures. It's where these are not done that again, the potential risks mount.
3. If committing to a term sale of 'x' tonnes per month that works on the customers present credit limit, but where there is no tolerance allowance for price sensitivity shift, then this is also a poor strategy. After all, if the limit is $1m then it is $1m not $2m just because prices have doubled.
So let's remember to consider these things, stop selling at crazy term spreads to customers who are not capable of justifying larger limits and let's make sure we have hedged appropriately to mitigate risk and considered the impact of price shift sensitivities on our capacities.
Establish your system and set appropriate limits, manage your system and limits, and stay within your system and limits.