uploads///Brent Crude Oil Prices

How Oil Prices Have Been a Boost for the Crude Tanker Industry

Sue Goodridge - Author
By

Aug. 18 2020, Updated 5:14 a.m. ET

Average crude oil prices for the year   

The average crude oil price from January 2015 to May 2015 was $58.42 per barrel. In the same period last year, the average was $108.19 per barrel. This drastic decrease in crude oil prices has impacted the crude tanker industry in several ways. For instance, crude prices have an impact on freight rates and bunker prices.

Article continues below advertisement

Crude tanker prices in May

The average price of crude oil in May 2015 was $65.62 per barrel, rising from $61.14 in April. But as compared to last year, May’s prices have fallen by 42%. We know that an oversupply of oil has lowered prices. The impact of this can be seen in freight rates and bunker prices.

Freight rates   

Recently, many countries—especially China—have imported larger quantities of low-priced oil to store for future use. This has increased the demand for crude tankers, which saw higher freight rates as a result. Higher freight rates are beneficial for the crude tanker industry.

Article continues below advertisement

Bunker price

The biggest cost to run a ship is bunker fuel. Low oil prices benefit shipping companies a great deal, as lower costs can increase the bottom line substantially. Higher oil price means higher operating costs and lower profits.

Contango

Contango refers to a situation where the current or spot price is below the future price. In this situation, companies buy oil on the spot market and store it for sale at a later date.

According to industry analysts, it costs ~$1.10 per barrel to store oil on VLCCs (very large crude carriers) for one month. For storage to be beneficial, the contango needs to be wide enough to exceed the storage costs. Wider contango situations lead to floating storage, which increases the demand for crude tankers. The wider the contango, the greater the benefit for the crude tanker industry.

Higher freight rates and lower bunker prices should contribute to better bottom lines at companies including Frontline (FRO), Euronav (EURN), Nordic American Tanker (NAT), Teekay Tankers (TNK), Navios Maritime Midstream (NAP), and Tsakos Energy Navigation (TNP). The PowerShares DB Oil Fund (DBO) will also get affected by lower oil prices.

Advertisement

Latest Teekay Corp News and Updates

    © Copyright 2022 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.