Bunker Prices Are Edging Higher and Could Impact the Tanker Freight Rate Benchmarks

With bunker pricing moving upwards a new revision of Worldscale rate is expected to transpire. In its latest weekly report, shipbroker Gibson said that “the past couple of years have been very turbulent in many international markets due to the global pandemic. We have seen very wide swings in prices of different raw materials, including crude oil. Brent futures dived from $66/bbl in December 2019 to $22/bbl in March 2020, while WTI front month futures briefly dipped in late April 2020 into an unprecedented negative territory as desperate traders paid to avoid taking physical delivery of oil. Thereafter, oil prices staged an impressive rebound, despite a sluggish recovery in oil demand. By December last year, Brent climbed above $50/bbl and has continued to firm this year, largely trading within the $70- 75/bbl range over the past couple of months, as most of OPEC+ production cuts, implemented in spring last year, remained in place”.

According to Gibson, “the extreme volatility in crude oil prices and hence bunker prices has meant that we have consistently seen large-scale changes in WS flat rates. In 2021, WS flat rates on long haul voyages dropped by around 16-17%, reflecting a dramatic collapse in oil prices in spring 2020. This year the picture is similar. The rebound in international bunker prices that took place between October 2020 and July 2021 implies that in 2022 we are bound to see yet another significant change in WS flat rates”.

The shipbroker added that “as the bunker element included in the WS flat rates formula is computed between October and September each year, we already have over 10 months of data that will go into 2022 WS100 calculations. These figures on their own show a nearly 12% increase in bunker prices compared to the corresponding period in the previous year. If we combine these numbers with the current forward bunker price indications for the rest of August and September, this suggests that next year WS100s will need to appreciate to compensate for higher bunker expenses, with the biggest revisions expected on long haul voyages. All in all, this means that in 2022 WS flat rates are likely to rise by 8-10% on long haul routes and by 6-8% on short haul voyages. Sadly for owners, however, these expected increases in nominal flat rates are cosmetic and will not have any impact on the dire spot tanker market reality… “, Gibson concluded.

Meanwhile, in the crude oil tanker market this past week, in the Middle East, it was “a fairly active start to the week gave VLCC Owners the faint hope that they were about to see a revival in fortunes, but as the week progressed it turned out like most other weeks, with Charterers pulling back and quietly going about their business without too much fuss. We end the week worryingly slightly down from the previous one, with last done for a modern approved unit fixing at 270,000mt x ws 30.75 to China. A voyage West remains illiquid with rates estimated to be around 280,000mt x ws 18.25 to the US Gulf (via Cape). A more buoyant week for Suezmax Owners that has seen rates dip to 140,000mt x ws 25 to Europe early in the week only to see levels rebound to ws 27.5 towards the end. Rates to the East hover around 130,000mt x ws 60. Now that we have a busier Atlantic market we will see more Owners deciding to ballast West. Continued activity paired with tight lists has seen rates and sentiment in the AGulf on Aframaxes continue to firm. A few pockets remain tight such as the Red Sea region and with that Owners are in a healthy position for the first time in recent memory. AGulf-East rates are hovering around the 80 x ws 102.5 level”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide