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Business News/ Market / Mark-to-market/  Falling crude oil prices fuel tanker rates
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Falling crude oil prices fuel tanker rates

The crash in crude oil prices has come to the aid of beleaguered shipping sector owing to higher demand for oil tankers

The Baltic Dirty Tanker Index and the Baltic Clean Tanker Index, which are indices for freight rates for shipping crude and refined products, have increased by 44% and 53%, respectively, from their lows in 2014. Premium
The Baltic Dirty Tanker Index and the Baltic Clean Tanker Index, which are indices for freight rates for shipping crude and refined products, have increased by 44% and 53%, respectively, from their lows in 2014.

The crash in crude oil prices has come to the aid of the beleaguered shipping sector because of higher demand for oil tankers. The Baltic Dirty Tanker Index (BDTI) and the Baltic Clean Tanker Index (BCTI), which are indices for freight rates for shipping crude and refined products, have increased by 44% and 53%, respectively, from their lows in 2014. Analysts say lower crude prices make oil purchases attractive, known to trigger stockpiling, and thus demand for tanker vessels has risen. Also, demand for crude is generally higher during winter.

While that augurs well for the shipping industry, this could well be a temporary phenomenon. That’s because more supply is expected to join the shipping industry in the days to come, which is likely to put freight rates under pressure. For instance, the total pending order book (till 2016) is still strong with about 214 million dwt yet to be delivered, pointed out ICICI Securities Ltd in a report last month. Dwt refers to deadweight tonnage, which measures the total carrying capacity of a ship.

For a while now, excess supply of ships has played spoilsport for the industry and those problems aren’t going to vanish overnight. The order book break-up as on October stands at 147.4 million dwt (20% of current fleet) for dry bulk carriers and 66.4 million dwt (13.5% of current fleet) for tankers, added ICICI Securities.

Also, even as the BDTI has increased by 44% from its lows seen in September, it is still about 15% down from 1 January. But the BCTI index for refined products has increased by about 28% so far this year.

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ABOUT THE AUTHOR
Pallavi Pengonda
Pallavi is a deputy editor at Mint and heads the Mark to Market team. This column covers wide-ranging topics related to the stock markets, offering an in-depth analysis of financial reports of companies. She writes and edits across verticals, covering the breadth of the Indian stock market. Pallavi has done her master of management studies, specializing in finance.
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Published: 16 Dec 2014, 07:04 PM IST
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