Cost to Fuel Ships Falls

For a ship that burns 24 tonnes of fuel per day while steaming, fuel costs are reduced by as much as $1 million a year if current price level stay put. Assuming a difference from the average of first half of 2014 at $578 for 380 cSt, High Sulphur Fuel Oil (HSFO) in Rotterdam, to a new level of $412, and a sailing time of 70%.

On an industry-wide scale, the drop have reduced the entire international shipping industry’s daily bunker cost by $117 million per day. Assuming an annual market for bunker fuels 257 million tons, bought at spot price and a drop in prices by $166 per mt on HSFO. Actually, it may be even slightly higher as prices for Marine Gas Oil (MGO) has slid $215 per mt, but no adjustment made for that.

“The drop in oil prices mirrors the disappointing development in the global GDP growth figures," said Chief Shipping Analyst at BIMCO, Peter Sand. "Despite the lower prices, bunkers remain the single most significant cost item for owners and operators. For a Handymax in current markets using abt. 24 tonnes a day, bunker cost amount to $10,000, close to twice the amount spent on OPEX (abt. $5,500 per day).

“Slow steaming is expected to remain an integrated part of shipping going forward in spite of the falling prices, as bunker cost are still significant and so is overcapacity in the freight market.

“The fall in oil prices and a strong start to the winter season have spurred demand for tankers lifting earnings within all tanker segments considerably.

The unrest in the financial markets starting in Q3 and continuing into Q4 have sent the global oil prices down. Due to more than adequate supply and less than adequate demand. Demand  side being the real trouble as the ongoing world economic recovery and keeps “postponing” the arrival of a sustainable global and regional economic growth level.

According to IEA: “Specific economic concerns regarding Europe, China and Russia act as a drag on the forecast, removing 0.4 mb/d from the 4Q14 estimate compared to last month's Report [September], but year-on-year (y-o-y) growth still accelerates to 765 kb/d for 4Q14.

The upside from the slide in oil prices is lower costs of energy for all including the shipping industry, which welcomes lower bunker prices.