Bunkers Are Getting Cheaper Relative to Crude as Prices Slide to Multi-Year Low

The prices of bunkers relative to crude is going down.

Bunker prices in some of the world's key bunkering ports Monday slid to new multi-year lows, but their price relative to crude is getting even lower, according to an analysis by Ship & Bunker.

IFO380 prices on Monday in Singapore, Rotterdam, Houston, Fujairah, and Gibraltor were $252.00 per metric tonne (pmt), $241.50 pmt, $229.00 pmt, $267.50 pmt, and pmt $263.50 respectively.

"Overall prices are at the lowest we've seen in about six years," one trader commented to Ship & Bunker.

"But I don't think we're done yet - there's room for prices to fall further."

Analysis by Ship & Bunker also shows that not only are bunkers getting cheaper, their cost relative to crude is also falling.

Based on a Brent bbl to metric tonne (mt) conversion of 7.53 bbl per mt, over the last three years the average IFO380 bunker price across Singapore, Rotterdam, Houston, and Fujairah has been between 69 and 80 percent of the Brent crude price on any given day, with the average price being about 74 percent of the price of Brent in that time.

However spikes above the 76 percent range are quickly corrected, and over the last three years the average of the four ports' bunker price has been between 71 and 76 percent of Brent for 81 percent of market days.

Looking at the data on an annual basis, in 2013 the average IFO380 bunker price across Singapore, Rotterdam, Houston, and Fujairah was 74.35 percent of Brent.

For 2014 that slipped to 73.84 percent, and has fallen again to 72.68 percent so far for 2015.

Over the last month it has slipped to an average of 70.17 percent of Brent, and on Monday was 67.45 percent - its lowest point since at least January 2013.

Some ports have witnessed even lower ratios, with Houston IFO380 prices on Monday at 62.43 percent of Brent, and in Rotterdam they were 65.82 percent of Brent.

The relationship between crude and bunker prices has also been much more volatile since oil prices started to fall at the end of last year, as can be seen in the following graph.