Oil Price – will it stick?

Malcolm Latarche
Malcolm Latarche

29 September 2016


Now that OPEC members have agreed among themselves to freeze or slightly reduce production, the effect on the oil price has been an almost 10% increase with the cost of Brent crude once again approaching $50. How long the rally will last and how strong it will be is anybody’s guess. Some analysts see the price up to $70 by the end of the year while others think it may be much less than that even perhaps falling back below $40. In Norway, the spiritual home of modern offshore, the government is very pessimistic and does not see prices north of $60 for at least two years and possibly longer still. In recent years OPEC has not been able to control the market as it did in earlier times and there is very little chance that it will ever again be in that position. While all of its members might like a higher price they are aware that above $50, other sources such as US shale become profitable again and supplies from there will pick up. Added to that is the fact that two years of falling prices have forced producers to look at cost cutting measures. Not something that has been good for the offshore ship sector but for shipping in general it has reduced bunker costs and left consumers with more disposable income and without the latter the effect on liner trades could have been devastating. As it is liner operators are struggling or in the case of Hanjin even going under. Shipping has learned to live with volatile bunker prices – it has not had much of a choice to do otherwise – and it will adapt to whatever level crude prices settle down to. Of much more importance to operators is what the IMO will decide as to when the global sulphur cap should drop to 0.5%. Potentially that has much more chance of damaging shipping profitability that oil at $115 per barrel ever did.