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Week 10: Why Did Bunker Fuel Prices Rise?

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Crude oil prices

Brent crude oil prices ranged from $38.70 per barrel to $41.10 per barrel for week ten, which ended on March 11, 2016. The prices were almost 27% lower compared to the same period last year.

Crude oil (DBO) prices impact crude oil demand. In turn, this impacts freight rates and bunker fuel prices.

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Oil demand and tanker rates

Lower oil prices encourage countries to import larger quantities of cheap oil to store for future use. This increases the crude tanker demand. This has a positive impact on tanker rates. Higher freight rates benefit the crude tanker industry.

Bunker fuel prices

Bunker fuel prices, the biggest cost to run a ship, are correlated to crude oil prices. For the week of March 7–11, 2016, the average bunker fuel price ranged from $222 per ton to $235 per ton. Bunker fuel prices were almost 50% lower compared to the same period last year. As crude oil prices rose, so did bunker fuel prices.

For major ports, bunker prices at Rotterdam were $150–$167 per ton. At the Port of Fujairah, bunker prices were $160–$182 per ton.

Lower (higher) bunker prices reduce (increase) operating costs and increase profits for companies such as Frontline (FRO), Teekay Tankers (TNK), Tsakos Energy Navigation (TNP), Nordic American Tankers (NAT), DHT Holdings (DHT), General Maritime (GNRT), Navios Maritime Midstream Partners (NAP), and Euronav (EURN).

Bunker fuel prices also affect the cost side of product tankers and other industries such as dry bulk shipping. These include Navios Maritime Partners (NMM) and LNG (liquefied natural gas) carrier companies such as GasLog (GLOG) and Golar LNG (GLNG).

Investors who are interested in broader exposure to the industrials sector can invest in the SPDR Dow Jones Industrial Average ETF (DIA).

In the final part of this series, we’ll look at time charter rates.

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