Hedging to increase as owners and operators seek secure risk management solutions



OW Bunker, one of the world’s largest suppliers of marine fuel and lubricants, today stated that ship owners and operators could look to take advantage of the current low spot prices for Rotterdam Fuel Oil Barges (FOB) 3.5% by implementing hedging instruments as part of a risk management solution to lock in fuel oil costs for 2014.

Since 1st July 2013, the average cost for Rotterdam FOB 3.5% has been $590.71 per metric tonne (MT), based on a high of $613.50 mt on 2nd August 2013, and the recent low of $561.75 mt recorded on 7th November 2013. In line with this, many large ship owners and operators have set their budgets for fuel oil for 2014 based on the average price. However, the current low means that prices can now be hedged for 2014 at Rotterdam FOB 3.5% of $570.00 mt.

“Given the shape of the current market, it is clear that there are significant hedging opportunities, and now is the time to implement effective risk management solutions, that lock in costs and maximise levels of profitability for customers going into 2014,” said Brian Thorhauge, Global Head of Risk Management, OW Bunker.

OW Bunker also believes that ship owners and operators should look to utilise a combination of hedging instruments within a risk management solution to best mitigate risk. This is based on a level of uncertainty in future oil prices, due to a combination of factors. This includes the impact of the US shale oil reserves, which could lower prices, balanced against the continued upturn and improvement in confidence within the global economy, which may see an increase in demand which will drive oil prices upwards. Geopolitical risks, specifically unrest in the Middle East and North Africa, will also have an impact.

Mr Thorhauge added: “Due to the level of uncertainty of future oil prices, we are starting to see more complexity within risk management solutions that move beyond plain swaps, which just fix the price of fuel oil for a specific period. We are now seeing customers implement multiple hedging instruments, such as combining paper and physical fixed prices.

“As well as purchasing a forward swap to protect against rising fuel prices, customers can also buy a forward fixed price physical. This means that they don’t have to worry about their paper positions and also have the assurance of supply when and where they want it, at an agreed price, which can be adjusted accordingly, based on the differential at the particular port where the product is lifted.

“Customers can also consider options as a hedging instrument, which is designed to help them determine their maximum fuel price, while benefiting from partial decreases in prices. Ultimately it is about providing tailor made solutions at competitive prices specific to the customer’s business and operations that maximize their profit in line with their appetite for risk.”