How Are Oil Prices Affecting DHT’s Costs?



Major costs

DHT Holdings’ (DHT) major costs include vessel operating expenses and voyage expenses. In 4Q15, DHT’s voyage expenses were 26% of its total operating expenses, while its vessel operating expenses were 27%.

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Decreasing voyage expenses

Voyage expenses for 4Q15 fell to $14.7 million compared to $17.2 million in the previous quarter and $25.6 million in 4Q14. This fall was mainly due to lower bunker fuel costs for vessels operating in the spot market.

Bunker fuel costs are closely related to crude oil prices. Oil prices have traded in the range of $27–$37 per barrel from the start of the first quarter of 2016.

The steep fall in oil prices will further lower bunker prices in the first quarter of 2016. This will lower voyage expenses for DHT Holdings as well as other crude tanker companies such as Euronav (EURN), Teekay Tankers (TNK), Tsakos Energy Navigation (TNP), Frontline (FRO), and Nordic American Tanker (NAT).

Increasing vessel operating expenses

Vessel operating expenses in the fourth quarter remained the same at $15.4 million compared to the previous quarter, but they rose by 5% over 4Q14. The increase was due to a new fleet addition in November 2015. Along with raising vessel operating expenses, the new fleet also boosted revenues, and DHT’s expense-to-revenue ratio fell to 16% in 4Q15 from the previous quarter.

The company has four newbuilds in its pipeline, which will be delivered from March 2016 to October 2016. Additions to the fleet will increase the company’s vessel operating expenses in the coming quarters. Tanker rates are expected to remain robust at least in the first half of 2016, so these new tankers will help to boost the company’s revenues. Even after a rise in operating expenses, the company’s expense-to-revenue ratio should strengthen the company’s widening profit margins.

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In the next article, we’ll take a closer look at DHT’s earnings.


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