tanker market oil speculators

Oil Speculators Distorting Shipping Market -China Cosco Executive

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July 11, 2011

tanker market oil speculators

Image from minnesotansforglobalwarming.com

PERTH (Dow Jones)–State-owned China Ocean Shipping (Group) Co. said Monday that oil-price speculators are currently the biggest headache for the global shipping industry, rather than an oversupply of vessels that has limited a recovery in freight rates.

“I don’t think it is oversupply. Speculators are affecting the market,” Cosco Group President Wei Jiafu told Dow Jones Newswires on the sidelines of the Boao Energy, Resources & Sustainable Development Conference.

Prices of benchmark North Sea Brent crude have risen strongly this year, with traders betting on a recovery in demand after the financial crisis and due to worries over unrest in the Middle East and North Africa taking a chunk of global oil production offline.

Civil war has halted production of 1.65 million barrels of crude a day in Libya, a member of the Organization of Petroleum Exporting Countries. China–the world’s second-largest crude-oil importer after the U.S.–has also played a major role in tightening the global oil market due to its strong demand growth.

China’s crude imports and refinery throughput has grown faster in the first four months than many analysts expected, although the government’s actions to rein in growth and lending through policies such as interest rate hikes are starting to weigh on consumption.

Higher oil prices are a worry for shipping companies like Cosco because they dictate the cost of bunker fuel, which is used to power vessels.

China Cosco Holdings Ltd. (1919.HK), the listed flagship of China Ocean Shipping (Group) Co., said in April that it swung to a first-quarter net loss of CNY503.3 million from a profit of CNY882.6 million a year earlier due to a drop in dry-bulk shipping rates and higher expenses.

Wei said the shipping industry needs to scrap older vessels and control orders for new builds over the next three years so that supply and demand in the sector can rebalance. “That would bring spring for the maritime industry. But this year is a tough year,” he said.

Wei said in December that Cosco has no plans to buy more dry-bulk ships, but would take delivery of 18 vessels–ordered earlier–in the 2011-2014 period.

As of March 2011, the firm owned 230 dry-bulk vessels with a capacity of 18.30 million deadweight tons. A perception of excess supply in the shipping market is further fueled by a reduced need for chartering.

Higher oil prices this year have resulted in an emergency stocks release by the 28-member International Energy Agency, as well as a fall in imports by China, both of which have reduced the need to import crude oil or products.

Chinese fuel oil brokers have also been reporting weak bunker demand at Chinese ports, citing the slowdown in industrial activity in China as affecting marine traffic. Bunker prices are on the rise again as stronger market fundamentals of fuel oil have reduced the marine fuel’s discount to crude oil this year and prices have closely tracked volatile crude benchmarks.

Free-on-board Singapore cash 180-centistoke high-sulfur fuel oil shot up to $700 a metric ton in early April before falling nearly $90 to just over $610/ton in early May.

Since then the 180-cst prices have clawed back to $672/ton, while freight rates have weakened.

Crude transportation rates have fallen steadily in recent weeks–a 260,000-ton Very Large Crude Carrier for the Middle East-to-Japan route was assessed last Monday at Worldscale 49.08, compared with W52.21 at the end of May.

-By David Winning (c) 2011 Dow Jones & Company, Inc.

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