The Twofold Effect of Lower Oil Prices on Crude Tankers
In February 2017, oil prices jumped to $54 per barrel—the highest level since June 2015. However, just four months later, oil prices have tumbled. In June 2017, oil prices fell to a seven-month low of $45 per barrel. Crude oil prices have now fallen nearly 20% from the start of the year.
On May 30, 2017, OPEC (Organisation of Petroleum Exporting Countries) and a few non-OPEC members agreed to extend their previous oil production cut agreement. But oil prices still haven’t stabilized.
Interested in DHT? Don't miss the next report.
Receive e-mail alerts for new research on DHT
The twofold effect
Most oil-related industries are now suffering from the drop in oil prices—except for the crude tanker industry. The fall in prices due to the oversupply of oil has had a twofold effect, from the demand side and from the cost side.
Lower oil prices due to oversupply encourage countries to import larger quantities of cheap oil to store for future use. This increases crude oil tanker demand, which then has a positive impact on tanker rates.
In 2015, the crude tanker industry was at a high because lower oil prices were proving beneficial for the tanker industry. Low oil prices encouraged countries—especially China—to import more crude oil and stockpile it for future use. This trend increased the demand for crude tankers, and the industry recorded growth.
Bunker fuel costs
On the other hand, crude tankers’ major costs—bunker fuel costs—are closely related to oil prices. In the first week of 2017, the average bunker cost at all the major ports was $372 per ton. Six months later, the average bunker fuel cost in the middle June was $310 per ton, representing a year-to-date fall of more than 16%.
Still, lower bunker prices reduce operating costs and boost profits for crude tanker companies like Teekay Tankers (TNK), Gener8 Maritime (GNRT), Tsakos Energy Navigation (TNP), DHT Holdings (DHT), and Euronav (EURN).