High bunker fuel prices are set to rise even higher in the next few years on environmental regulations and reduced global production, potentially eroding owners’ earnings even further than being seen in the tanker industry today, writes Hal Brown .
The forecast by the research team of New York broker McQuilling Partners is underpinned by Russia’s decision to raise taxes on its exports of fuel oil, which is blended into bunkers.
Russia, the world’s largest exporter of fuel oil, will raise tax on its oil product exports, which includes fuel oil, because earlier this year the country faced gasoline shortages and wants to avoid this being repeated by high volumes of exports.
Higher taxes on Russia’s fuel oil exports will discourage those exports due to reduced profitability, resulting in Russian refiners lowering production of fuel oil, according to McQuilling.
After the new export duty comes into force on October 1, throughput at Russian refineries could be lowered by 250,000 bpd by next year and by an additional 500,000 bpd in 2015, the report said, using information from JBC Energy.
Alongside Russian export tax rises cutting fuel oil availability, refiners around the world have been reducing fuel oil production, said the report.
The tightness of fuel oil supply could, though, be reduced as demand for fuel oil for power generation is reportedly set to decline, to be replaced by cleaner and often cheaper natural gas.
However, that does not rule out the potential development of higher future bunker prices heavily impacting an already beleaguered tanker industry. High bunker prices eat into owners’ daily earnings.
“Russia’s decision to realign its export strategy has the potential to sharply lower the availability of fuel oil in the coming months and years,” concluded McQuilling. “The downstream sector’s drive to continue investment into slashing fuel oil production has tightened supplies, yet this has been somewhat offset by decreased demand.
“In the coming years, shipping market participants will face a double assault as sulphur restrictions combined with reduced fuel oil volumes will undoubtedly drive bunker prices higher.”
The cost of bunkers for Fujairah 380 cst fuel is $657 per tonne, according to Greek shipbroker Optima. Earlier this year, prices reached a high of more than $700 per tonne.