OW Bunker: Significant Hedging Opportunities in Current Bunker Market

Thorhauge says a combination of hedging instruments should be used within a risk management solution.

Marine fuel and lubricants supplier OW Bunker today said for 2014 it expects to see an increase in hedging activity as ship owners and operators look to take advantage of the current low spot prices for Rotterdam Fuel Oil Barges (FOB) 3.5%.

"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," Brian Thorhauge, Global Head of Risk Management, OW Bunker, said in an emailed statement.

OW Bunker said that since July 1, 2013 Rotterdam Fuel Oil Barges (FOB) 3.5% has averaged $590.71 per metric tonne (pmt) and many large ship owners and operators have set their budgets for fuel oil for 2014 based on that average price.

However, the current low means that prices can now be hedged for 2014 at Rotterdam FOB 3.5% of $570.00 pmt.

Uncertain Movements

The supplier noted the uncertainty surrounding future oil price movements, saying the impact of the U.S. shale oil reserves could lower prices, but a continued upturn and improvement in confidence within the global economy may see an increase in demand which will drive oil prices upwards.

As such, Thorhauge says he believes that ship owners and operators should look to utilise a combination of hedging instruments within a risk management solution.

"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," says Thorhauge.

"We are now seeing customers implement multiple hedging instruments, such as combining paper and physical fixed prices."

Thorhauge said customers can also look at options as a hedging instrument, which can 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," he concluded.