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Oil price fears to see rise in bunker hedging

Friday 15 J anuary 2010, 15:25
by Roger Hailey
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Shipowners will not be driven away by CMA CGM’s $1bn hedging
losses in 2008.
AS OIL price volatility looms again, shipowners looking to hedge their bunker costs have not been frightened by a renewed focus on CMA CGM’s
$1bn oil hedging losses in 2008.
Global Risk Management, which advises owners on bunker price mitigation, said that the high profile problems of the French container line were
“irrelevant” in terms of the effect on market sentiment towards hedging.
GRM’s executive sales director, J an Knudsen, says current uncertainty about the oil price and its knock on effect for ship bunkers “will actually
increase the number of companies being involved in risk management”.
Mr Knudsen added: “I am not saying shipowners will conclude more fixed price agreements but they will certainly be involved in risk management,
as they try to align their cost structure to their income. They have seen what damage can be caused if they do not.”
GRM, part of the tanker owner and shipping fuel supply group USTC, did not advise CMA CGM on its oil hedging, and is unwilling to comment
directly on events at the line two years ago.
But, in a general observation, Mr Knudsen stated: “In 2008 there was a dramatic increase in the demand for hedging products because everything
was going bananas, and owners wanted to mitigate the risk. For most of 2008 the oil price went up and then collapsed, so it was a question of
adjusting your hedging position in the new and evolving market.”
With oil currently at $78 per barrel, and expected to rise, shipowners are again looking at how they can avoid being hit by a volatile bunker market.
Adds Mr Knudsen: “We believe that the oil price will increase throughout 2010, but that has absolutely nothing to do with our recommendations as
when to hedge bunker prices and when not to.
“Our view is that crude will move towards $90 per barrel by the end of the year and that means Rotterdam bunkers at 380csi will be around $500.”
Mr Knudsen says that one problem afflicting the shipping industry is that managers tend to concentrate solely on costs, “but if they had focused on
income then they would have known that there is something wrong. They are stuck with fixed costs but the income is falling dramatically.”
He continues: In J uly 2008 everybody was shouting that $200 per barrel is just around the corner, and we were then at $135 or $140. So people
jumped in to conclude a hedging business. That is OK, but you must be very certain about your future freight income, and that the bunker cost
locked in is aligned with this income.
“If you have conducted proper risk management and hedged with the right tools for each of the different contracts with your vessels, then you will
have absolutely no problem continuing to hedge.”
Mr Knudsen adds: “It is ironic. People call us to handle their cost side and our first question remains, how is your income? It is so important, that I
cannot stress it enough.”
Oil price fears to see rise in bunker hedging
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Article from Lloyd's List
Published: Friday 15 J anuary 2010
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