When oil prices fall, shipping companies experience a huge benefit in the lower cost of fuel as well as an increase in the demand for oil tanker storage space. One of the major operating expenses for shipping companies is fuel. Early this year, economists wondered if there was a bottom to the price of crude.
The reality is that oil prices are cyclical. But the recent lifting of Iran's oil sale sanctions and the new ability for the US to export oil will most likely keep oil prices on the low side for the foreseeable future, as reported in the Wall Street Journal. Iran is expected to offer $1 million barrels a day to the marketplace and the US has more than $10 billion worth of excess oil stored in the Strategic Petroleum Reserve, so it does not need to limit oil exports. Added to this, oil shale operations can be profitable when oil is selling at $40 a barrel – and once consolidation in that industry has slowed and technology has improved, the oil will flow steadily from this source.
Hellenic Shipping News reports that daily rates of oil tankers have increased from $25,000 a day in 2012 and 2013 to as much as $90,000 in 2015. Contango, the storage of oil in offshore vessels, has increased measurably.
Lower costs for fuel allow shipping firms to focus on operational efficiencies: adding new routes that were once unprofitable, taking on delayed infrastructure upgrades, purchase of vessels with greater cargo capacity, investment in technological innovations.
Less expensive fuel also leads to lower costs in shipping dry cargo, although the overall downturn in the global economy, especially the falling demand from China, has stressed this area of the shipping industry. In February, Reuters called this a crisis for dry-bulk shipping firms. However, Maersk, the world's largest container shipping line measured by capacity, reports strong growth in shipping volumes in early 2016 compared to last year. Its shipping from Asia increased almost 15% prior to Lunar New Year celebration factory shutdowns. Vessels up and down the Asian coasts have been sitting idle waiting in Singapore, Indonesia and China ports for cargoes. The balance between capacity and market demand is especially challenging at present. The Wall Street Journal cites the Baltic Dry Bulk Index – which measures commodity shipping prices – remains 74% below 2015's peak hit just in August.
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