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Thursday, 27 November 2014

Oil prices, Iran and OPEC – some good news for shipping?

Seatrade global does not often have occasion to talk about the landlocked country of Austria, but decisions being made in Vienna this week could alter the shipping landscape for years to come.

On Monday, nations agreed to defer the easing of the sanctions on Iran, avoiding a further knock to the suffering oil prices as its oil hit the market. Good news for Saudi Arabia and squeezed Russia, but not so good for tanker owners, who could been seeing another estimated 4m barrels per day (bpd) of additional crude to whittle oil prices down even further, bringing cheaper fuel and higher demand.

But Iran aside, shipowners of all stripes have finally been having some respite from the record bunker costs as oil prices continue downwards, plunging by about 30% since mid-year. According to Bunkerworld, which compiles bunker price averages from ports across the world, a tonne of 380 cst HFO was priced at an average $463, compared to an $612.50 per tonne at the end of November last year. Interestingly for owners operating in the North European and North American 0.1% sulphur emission control areas (ECAs), the fuel was an average of $773 per tonne last Friday - and if current trends continue, could fall lower than last year's peak HFO prices.

But even with lower prices, levels of $460 are by historical standards very high and will continue to make up the largest portion of operating costs. Seaspan ceo Gerry Wang said in their quarterly results call last week: "Despite the bunker price drop, bunker costs will continue to be the most important cost item accounting for 30% to 45% of their operating cost to charter new eco-class vessels allows our charters to bring their cost inline and improve profitability."

The decrease in the oil price has been largely attributed not only to a lull in demand from a struggling global economy but also, thanks to fracking, surging US crude oil production, which recently broke 9m bpd – just 0.6m less than Saudi Arabia. Some estimates put US output at 14m bpd by 2020, giving the country the potential to export significant volumes if the current ban on crude exports is lifted.

This has put a smile on the face of Nordic American Tankers boss Herbjørn Hansson, who last week expressed his delight at the additional demand prompted by tumbling crude prices, partially making up for the West-African exports to the US that have dried up as a result of the US' domestic production.

“The effect of all this is growth - more investment, more jobs and more oil demand,” said Hansson. “In the US, there is now significant domestic oil production. The story is not the same in other places. We see in the shipping market that volumes of oil being transported are increasing. This increases the worldwide demand for suezmax tankers, which is positive for our business.”

All this could change on Thursday, however, when various members of OPEC will be pushing for a cut in output at another Vienna meeting, reducing its nominal 30m bpd output to shore up prices. The big question is whether Saudi Arabia, the group's highest-producing member, will agree to cut production and risk losing market share to other OPEC nations.

Opinion is divided as to the outcome. One Bloomberg survey showed an even split between analysts on whether OPEC will lower production; meanwhile an article in the UK’s Daily Telegraph newspaper made the extravagant claim "Sun sets on OPEC dominance", indicating that whatever happens, the group's negotiating clout is on the way out.

Only time will tell if shipping will see a welcome reprieve - or more of the same.
Written by Charlie Bartlett from London

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