IMO2020: Should We Believe the Analysts?

by Paul Hardy, NSI
Friday November 16, 2018

I have a healthy skepticism of analysts. Especially those which have a vested interest in the commodity they are analysing. So when large financial institutions give firm opinions that oil will trade in one direction I automatically look for the counter argument.  Intuitively I feel the market will do the opposite the analyst predicts. After all they are being employed to influence how people think and trade. If on the trading floor I want to sell the analysts job is to construct the reason why you should buy in order to support the trading floor. Of course, there are well balanced analysts arguments about the risk factors and how a different scenario can occur but this directional fence-sitting undoubtedly does effect the market.

In the run up to the Iranian sanctions coming into force the market rose and rose on the back of analysts sentiment of the impending shortfall in supply whilst in the real world we saw stocks building. Trump's 8 country waiver of course helped the price decline but with the global economy in limbo and increasing protectionism, was demand for oil that high anyway? Those of you that received my Q4 market outlook report will know my views and the predicted direction of the market.

IMO 2020 is another example where analysts seem to have lost their way, and no matter what you think the HSFO/VLSFO spread is going to be, and whatever compliance option you favour - be it scrubbers, 0.50% VLSFO, or otherwise - there are analysts making the argument that you're right.

In the bunker market we are devoid of analysts. No one sticks their neck out and says prices will move in one way or another. This is because we are connected to the real market and the actual consumers. If we get it wrong in public our customers will let us know very quickly. As such, the dark arts of price prediction are done in private.

What is becoming apparent is with a changing market we need not more analysts but more analytics. Gone are the days where complex planning can be done solely on excel sheets. There are tools on the market which can extrapolate the necessary data, analyse and put into a format that is easily understood by the client. We have invested in our own analytics by developing our platform which gives an overview of suppliers plans for IMO2020. We have also recently updated the search facilities enabling the data to be easily extracted.

What's more, we are in discussions with tech partners to expand our offering in this field to help gather data and then use it to improve operational planning, compliance, benchmarking, claims handling etc. I see it as a key part of our business going forward. Those in control of the data will be a step ahead and those who control the analysis will be a country mile ahead of the competition.

The future market I believe will not be dictated by analysts with ever changing views but by a fact based approach based around on the ground gathering of market intelligence and a move to greater understanding of demand, supply and logistics.

If though, you are after future direction my advice is simple. Look at what you have budgeted for the following year. Are the future bunker prices lower than your budget? Are they close to the lows of the last 1-2 years? Is the market backwardated heavily and has this been the case in previous years? If so, my advice is clear start looking at contracts. They will make sense from both a pricing perspective and from the securing of logistics in an increasingly complicated supply chain. You kill two birds with one stone.

Trust me I am a bunker broker not an analyst!