OPEC talks only add to fuel mix uncertainty

US shale oil and gas production was the initial spur in the 2014 collapse in crude oil prices but in the fall to prices around $30 per barrel, shale production also suffered.

Since the low point, crude oil has now doubled in price but producers of all types including offshore and shale have learned how to trim costs and make oil profitable even at prices below the current $63 or so.

The price rise in crude has obviously impacted on bunker costs which have been steadily rising over the last 12-18 months and in turn on shipping companies’ bottom lines. Today all eyes will be on OPEC which is meeting with non-aligned Russia to discuss keeping a rein on future production.

Several analysts believe that oil is currently a little overpriced and prolonging the OPEC production cuts will only encourage more US shale production that will bring an inevitable rebalancing on prices back to below $60 per barrel.

Any reduction in costs will be welcomed by shipowners but whatever the outcome of today’s meeting is, the effect on bunker prices will probably be within the range that shipowners are well used to coping with. What is preying much more on owners’ minds is the uncertainty over fuel types and prices after 2020 when the new global sulphur cap on fuels used outside of ECAs kicks in.

With a little over two years left to decide on and implement a strategy for the future, shipowners have not been given any reliable information on the fuel mix that will be available or the price differentials between fuel types. That makes decisions such as installing scrubbers or converting to another fuel type more of a gamble than owners would like.

There has been more support recently for scrubbers from the likes of Deutsche Bank which believes that the economic case for installing them is very persuasive, On the downside, the bank believes that the small manufacturing base for scrubbers will be a brake on their rapid deployment just as much as obtaining finance might be.

ShipInsight recently reported Wartsila’s Sigurd Jensen as saying that some 60% of suitable newbuildings were being built with scrubbers in mind, but if the retrofit market is to grow then it is certainty over the available fuel mix that will be the spur needed to galvanise owners. Until that certainty exists – and there are just as many factors outside of shipping to consider that will affect it (use of electric vehicles, power production ashore and such matters altering refining demands) – owners who act in haste could find themselves losing out just as easily as those that hold off instead of being ready to hit the ground running in 2020.