Friday, October 3, 2014

Lacklustre bunker prices to affect Worldscale rates

The lack of sizeable swings in oil and hence bunker prices will be reflected in next year’s Worldscale flat rates.
The bunker element that is taken into consideration in the flat rate formula is based upon prices between October and September each year, therefore most of the data needed is already available for the 2015 calculations, EA Gibson said in a recent report.

Bunker prices are one of the most important factors when setting the Worldscale rates (WS100).
This is particularly true with long haul routes where bunker costs are the largest expense incurred by owners during the voyage, Gibson said.

Until recently, we have seen huge volatility in oil and bunker prices with Brent levels first going above $145 per barrel in mid-2008, collapsing to below $40 per barrel in early 2009 before recovering to above $100 per barrel in 2011.

These swings resulted in significant changes in WS100 rates between 2009 and 2012.

However, today the picture is totally different. There has been little fluctuation in oil and bunker prices since March/April last year, despite crude oil output disruptions in Libya and tensions surrounding Iran, Iraq and Russia, Gibson said.

This period of relative stability was primarily underpinned by rapidly rising crude production in the US, which has increased by over 3 mill barrels per day since 2008 with more major gains expected going forward.

International bunker prices have averaged just 2% lower between October 2013 and September 2014, compared with the corresponding period a year earlier. This suggests that 2015 Worldscale rates will drop by only about 1-2% on long haul voyages and also implies even smaller changes on short haul routes.

However, on shorter voyages, the bunker element forms a much smaller part of the overall costs, thus major fluctuations in exchange rates will play a more significant role in setting flat rates.

Furthermore, from January 2015, owners operating within ECAs will incur additional voyage expenses, due to the requirement to burn 0.1% sulphur fuel.

It will be interesting to see how the Worldscale fixed differential for miles steamed within an ECA region is adjusted to account for this increased expenditure, Gibson concluded.    

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