Low Bunker Prices Encourage Tanker Rate Hedging Boom

Tanker industry sources say the hedging market for oil tanker freight has risen "sharply" this year to about $4.5 billion.

Tanker industry sources say that, after years of lethargy, the hedging market for oil tanker freight this year has risen sharply to a total of about $4.5 billion, thanks in part to lower bunker prices that are said to be helping carriers' bottom lines and further contributing to speculative activity, Reuters reports.

VKCC tanker rates are reported to have risen to over $100,000 per day in recent weeks - their highest since 2008.

The market's "best earnings in years" is said to come as a result of a push to take advantage of cheap oil prices, high levels of output at refineries, and energy companies that are rushing to mitigate their risk.

Tanker freight forward agreements (FFAs) have also seen a jump in activity.

"A lot of oil majors are under a lot of pressure," said Jay Lovell, chair of the FFA Brokers Association.

"They have to be seen hedging any kind of assets that they have ... that is why you are seeing a lot more driven volumes coming through from oil majors these days."

Volumes traded in crude tanker FFAs are reported to have doubled to 106,660 lots this year so far, compared to 51,257 lots last year, and 35,990 lots in 2013.

Meanwhile, benchmark Baltic Exchange data is said to show that products tanker FFAs have reached 132,761 lots this year, up from 129,899 lots in 2014, and 143,094 lots in 2013.

The increased activity within the market is reported to have encouraged 20 new participants to join the FFA tanker market over the past six months.

"With the upturn, conventional (tanker) owners are coming back with money in their pockets - and that can be used in instruments like this," said Glenn Huniche, FFA trader at Maersk Tankers.

In September, Drewry Shipping Consultants Ltd (Drewry) warned in its Product Tanker Market Annual Report 2015 that a growing fleet will negatively impact sector earnings in the medium term.