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Uprun of Bunker Fuel Prices: Did It Stop or Continue in Week 23?

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Crude oil prices

Brent crude oil prices ranged from $50.40 per barrel to $52 per barrel in week 23 of 2016, which ended on June 10, 2016. Prices rose from the previous week when they ranged from $49.70 to $50.20 per barrel.

The current prices are still 21% lower than they were during the same period last year. Remember, crude oil (DBO) prices impact crude oil demand, which affects freight rates and bunker fuel prices.

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Oil demand and tanker rates

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

Bunker fuel prices

Bunker fuel prices, which represent the largest cost to run a ship, are correlated with crude oil prices. For the week ended June 10, 2016, the average bunker fuel price was $281.20–$296 per ton. Prices were almost 23% lower compared to the same period last year. They rose over the previous week when they were $281–$282.50 per ton.

For major ports, bunker prices at Rotterdam were $226–$236 per ton. This compares to the previous week’s $221–$226 per ton. At the Port of Fujairah, bunker prices were $242–$250 per ton compared to the previous week’s $239–$242 per ton.

Why it matters

Lower bunker prices reduce 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), Gener8 Maritime (GNRT), Navios Maritime Midstream Partners (NAP), and Euronav (EURN).

Bunker fuel prices also affect the cost side of product tankers and dry bulk shipping companies such as Navios Maritime Partners (NMM). LNG (liquefied natural gas) carrier companies such as Teekay LNG Partners (TGP), GasLog (GLOG), and Golar LNG (GLNG) are also affected by bunker fuel pricing.

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

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