Shipping braces for fuel cost surge after Saudi oil attack

“As oil prices are likely to remain elevated in the short run, that will be reflected in bunker prices.”

The rising cost of bunkers will quickly be passed through to shippers by container lines, according to Simon Heaney, senior analyst for Container Research at Drewry.

“The way that crude prices have spiked after events in Saudi Arabia would indicate that there will follow a commensurate rise in BAF (Bunker Adjustment Factor), prices of which are closely aligned to crude,” he said.

Analysts say the attacks on Saudi Arabia represent the biggest disruption of oil supplies in history, surpassing the loss of Iraqi and Kuwaiti supplies in 1990 and the loss of Iranian output in 1979.

As markets opened Monday morning, benchmark oil futures were up almost $12 a barrel to over $71. This represents the biggest increase in futures prices in dollar terms since futures started trading in 1988.

Brent prices initially jumped almost 20%, their biggest percentage increase since 1991, before subsiding.

Peter Sand, chief shipping analyst at BIMCO, told FreightWaves that the 15-20% price increase in crude oil seen Monday around the world would “naturally also bring bunker fuel prices higher.”  

However, he said how this played out in bunkers futures markets would be highly variable. “Prices for HSFO in Rotterdam and Singapore are currently uncorrelated with oil-futures pricing,” he said. “They are run most by speculation on availability and general uncertainty around the introduction of IMO 2020 low-sulfur fuels by Jan. 1, 2020.

“HSFO in Rotterdam is sold at a cheaper price than oil-futures. In Singapore it’s the other way around — HSFO is sold much higher than the underlying oil-futures indicate.”