Bunker costs stability could lead tanker earnings to higher levels
In a sign of things to come, the cost of bunker fuels could yet again become a major reason for shipowner headaches, despite the recent ?quietness? of trade, which has seen prices behaving in a rather stable manner, the exact opposite of what"s been happening with the dry bulk market, i.e. the ship owners" source of income. Things haven"t been that stable in the recent past, as a result of the growing instability of oil prices. This volatility, which could have been a sign of things to come, saw oil prices moving up from $51/bbl at the start of 2007 to $146/bbl (for Brent) by July 2008, the latest peak. As a result, bunker prices exploded from $250/ton for the average 380 cst to just above $700/ton. Of course, during that time, most owners could afford such prices to operate their moneymaking vessels, with the cost of hiring a vessel following a similar rising pattern. This trend was supported by a strength of economic growth, which pushed oil demand higher and subsequently oil prices.
Since that erratic period, things have moved about differently. The mid 2008 crisis reversed those fundamentals, leading both demand and prices lower. With brent crude falling to only $38/bbl, bunkers retreated close to $200/ton, their lowest levels in four years. It was a much needed breather for ship owners, who were looking the ?shipping miracle? collapse into ruins. But, it was a short lived breather, as OPEC quickly reacted, lowering its production, while at the same time, expectations of a rebound in economic activity, which would then lead to higher oil demand, pushed futures prices higher, almost from the beginning of 2009.
In its latest weekly report London-based shipbroker Gibson said that bunker prices over the past six months have been more stable than at anytime in the previous four years, close to $450/ton, hand in hand with oil prices, which have been trading in the $70-80/bbl range. ?This extreme price volatility over 4 years has not only impacted on bunker costs; there has been a huge impact on the Worldscale flat rates. Flat rates are based on historical bunker prices over the period October to September (e.g. 2010 flat rates are based on prices from Oct 2008 to Sep 2009, as shown by the blue dashed lines on the graph). As a result of the 2007/08 price hike, 2009 Worldscale flat rates for long haul voyages increased by a massive 40%. The 2008/09 price fall then led to the sharp drop in Worldscale flat rates for this year, which were down 25% for long haul voyages. Now, the rebound and stability in prices since last October will result in another major revision to flat rates next year. We have had 6 months of data that will go into the 2011 Worldscale calculations. This, coupled with the stable price outlook for the next 6 months, implies Worldscale flat rates for long haul voyages will rise by 25% next year. Hence, we will face another big change in Worldscale spot rates at the start of 2011? said Gibson.