Thursday, 3 September 2015

"Oil tankers swing round the Cape to create profit"

Emailed in by MBK from The Times:

It is a treacherous route that mariners thought they had seen the back of when the Suez Canal opened a century and a half ago, but low oil prices have made the trip from Asia to Europe via the Cape of Good Hope more attractive.

As the price of crude was sent lower again yesterday, research from Bloomberg showed that tankers have been making longer voyages to take advantage of market conditions. At least five have gone as far as avoiding the short-cut to Europe via Egypt, a diversion that adds 4,000 miles to the journey...

The article goes on to suggest that people are not in a hurry to bring the oil to the market because they expect prices to rise, so they are effectively storing it on tankers, which has been observed before.

The other point is:
- Suezmax tankers use a lot of oil per day. Based on this specification, the oil costs about $40,000 a day at $100/barrel and $20,000 at $50/barrel. They also cost $30,000/day to charter. So your daily cost has gone down by about a third over the last year.
- The price you pay for using the Suez canal is largely rent. They know how many days you can save by using the canal and roughly what it costs you per day. As long as their toll is less than this, you are happy to pay it. Panama does the same calculation and both canals cost about the same (they are to some extent competing on e.g. the China to Europe route).
- The toll for a Suezmax tanker is about $300,000 (fun online calculator). (This implies that tanker owners place a value of only $20,000 per day saved which doesn't tie in, does it?)
- So if your daily costs have gone down by a third, the price you are willing to pay to use the Suez canal also goes down by a third.

To sum up, cheaper oil makes the Suez toll worse value and so fewer tankers will use it until toll charges fall. And we would expect to see that there is some correlation tolls and oil prices (if anybody can find a history of changes in tolls).