Monday, March 02, 2015

Achchhe Din (Good Days) are back

Ship-owners need not say cheese anymore.

Fall of Oil prices to USD40-50 a barrel is an unfortunate over-reaction to oil's increased supply over the past few years. More so, when the demand side has always been up and pickin.

In reaction to current oil prices we are seeing steep drop in CAPEX into upstream. At the same time there is gradual shutdown of the supplying wells.  It is nobody's guess but just a matter of time when the demand-supply equation will grossly trip over in favour of the producers and the prices will quickly sprint up to unprecedented levels once again.

Oil producers are vulnerable at present but the tanker owners are already reaping a windfall. Big owners and traders are going in for mass storage activity on VLCCs. For each dollar increase in oil price they make usd2million on a V.  Also, the Vs on storage duties means reduced availability of tonnage for the spot trading market thus a high freight for the sailing sisters. And also, a contango in oil prices leads to higher trading volumes and demand for tonnage. So all in all "Achchhe Din" (good days) for the tanker owners are here to stay until we see the oil prices stabilised to more rational levels.

Not only the tankers but, toward the later part of the upswing in oil prices, dry bulkers will also catch up with their envied sibling, as at those high levels oil prices will push up the demand for coal and iron ore too. 

No doubt, ship-owning business is not for faint-hearted. Latch on to the roller coaster without missing a heart beat. 


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