Oil Prices Ups and Downs

The price of marine fuel fluctuates from day to day, and this can be confusing and bewildering for some of our customers!

Large oil refineries buy raw crude oil, which they process and make into petroleum products such as marine gasoil. In short, crude oil is distilled (i.e. it is heated, becomes a gas, then cools, condenses, and becomes oil again) into the refined product that is needed to power the engine of a ship: the fuel you buy. Global stockpiles of crude and refined oil go up and down, as global levels of supply and demand change. As in any market, prices go up when demand is high and supply is scarce; prices go down when demand is low and supply is plentiful. When the price of crude oil changes, as it does every day, the price we pay to the oil companies changes too, and so does our price to you.

However, real shifts in the physical supply and demand of crude oil and its bi-products occur slowly and over long periods of time, and can’t explain why the price of oil is in a constant state of flux. In reality, the actions of global market speculators – i.e. trading houses, investment banks and hedge funds – cause the day to day movements in the price of oil: Speculators manage vast portfolios of stocks and shares made up of commodities including oil, gold, silver, steel, corn, sugar, rice ... and currencies. As they buy (or ‘take a position in’) a volatile/risky stock (such as oil), they usually buy a slow-moving/safe stock (such as currency) too, to minimise risk. This is known as hedging, and explains why foreign exchange rates and the price of oil are closely correlated.

So when speculators buy or sell oil stocks – every working day and at times in a buying frenzy or a huge selloff – the market price goes up or down. Oil was traded at around $20 to $40 a barrel for much of the 1980’s and 90’s; the price has gone up steadily this century and reached a high of $147 a barrel in July 2008. Factors that influence the actions of speculators are many and varied and might include, for example, a hurricane threat in the Gulf of Mexico, worse than expected unemployment figures, political tensions in the Middle East, interest rate changes, environmental disasters, technological advances, new trade regulations, changes of government and so on.

So, next time you call us for a quote, please remember that the price of fuel is linked to the price of oil, which is linked to currencies, politics, economics and the weather ... and this is what makes our business so dynamic.

For more information please contact enquiries@sea-bunkering.com.

Back to news