Oil price rise brings hope

Republished by kind permission of: A&A Thorpe, 131a Furtherwick Canvey Island, Essex SS8 7AT Tel: +44 (0) 1268 511300 Fax: +44 (0) 1268 510467 shipaat@aol.com

When visiting shiprepair yards throughout the world, and especially in northern Europe, many say they look at the oil price as a main indicator of the future of the world’s economy, and, although it has little direct effect upon the fortunes of the shiprepair industry, this benchmark is a general indicator of how the world is faring. In the offshore industry particular, the number of projects undertaken has a direct reflection upon the oil price.
    There have been many conversion, refurbishment and modernisation projects ‘delayed’ over recent months – to a point, especially in northern Europe, whereby there are now concerns over suitable capacity available if all these ‘delayed’ projects suddenly became active once more – many market watchers in this particular market niche say that oil prices will only have to return to between US$60 and $70/barrel for a re-emergence of this activity to begin. Well that has now happened.
    Oil prices have risen to a six-month high, above $63 a barrel (this is between the magical ‘re-emergence figure), after key oil-producing nation Saudi Arabia said it was optimistic about economic recovery. It is hard to imagine that it was only during February (some three months ago) that the oil price had fallen to below the $40/bbl level – the lowest was about $34/bbl.
    Saudi oil minister Ali al-Naimi is quoted as saying prices would keep increasing since demand was ‘picking up’. US light crude oil settled up this week $1 to $63.45 a barrel, its highest price since November and Brent crude rose $1.26 to settle at $62.50. The comments come as members of oil cartel OPEC decide on output levels. Mr al-Naimi said the members did not need to alter production levels to buoy prices at Thursday’s scheduled meeting of OPEC, to be held in Vienna,. “There is no need to cut production,” he told reporters, saying that the cartel should ‘stay the course’. It is widely believed that OPEC will hold production quotas steady.
    He predicted that prices were likely to reach $75 a barrel by the end of the year (well above the re-emergence criteria), boosted by demand in Asia. But there is still much uncertainty about the trend in oil prices, as there is about the wider economy. Many watchers point to the fact that there is not a really ‘strong’ recovery yet. However, OPEC does indicate that there the world will not see oil demand falling any further.
    This latest trend, and the expected decision by OPEC to retain quota levels appears to be a slow recovery indicator for the world’s economies, and this is being backed by words from the US President who has described the US economy having “come back from the brink of disaster”. Comforting words for a market, which last year saw oil prices rise to $135-140/bbl, which, as many said at the time and has been also generally accepted since, was the work of speculators.
    So, will such a steady rise (and let’s hope that it continues – but in a sane manner) result in the shiprepair industry having to batten down the hatches as many ‘delayed’ projects now become viable again. I don’t think so – but it will have an effect at the high end of the repair and conversion markets, where more discussions will now begin on such projects. There is sufficient capacity – even in northern Europe, and although many shipowners will cry ‘poverty’ at the general repair end of the market, there is hope at the other end.