Fuel, the one common dominator across the UK fleet, continued to drop in price the week before last when Brent crude oil, used as an international benchmark, sold at under $30 per barrel for the first time since 2004, reports David Linkie.
Above: Fuel being pumped aboard a vessel at Peterhead, as the price of Brent crude continues to fall.
After hitting a record high of $145.61 on July 8, 2008, which created major difficulties for skippers and crews across all types of vessels, oil prices fell sharply by almost $100 towards the end of that year. The next two years saw a steady upward rise towards $120, before prices settled at around $115 in early 2011. For the next three and half years, the cost of Brent crude oil hovered around this level, before starting to nosedive in the second half of 2014 to less than $50.
Early 2015 saw a small recovery towards $65, before prices weakened again, passing below the $30 mark on January 13, 2016.
The drop in Brent crude oil from its all-time peak of $145.61 per barrel seven and a half years ago, to below $30 last week, represents a 79% fall.
In quayside terms, this means that, dependent on geographical location, fuel last week was selling at around 23p per litre, compared to the record high of around 65p per litre experienced in 2008.
A drop of 42p per litre between the two extremes equates to a reduction of 65%.
At a time when most other running costs are creeping ever upwards, including leasing quota, the current low cost of fuel clearly represents welcome news for all fishermen, irrespective of the size or type of boat they are running.
While the financial savings to individual vessels are dependent on a wide range of factors, and therefore cannot be compared, a clearer picture starts to emerge when a boat’s fuel costs are calculated as a percentage against the top line gross.
Ballpark figures, sourced from a representative cross-section of skippers by Fishing News last week, indicated the following savings when based on high and low fuel costs of 65p and 23p per litre:
- A medium-sized twin-rig prawn trawler using on average 10,000 litres of fuel per trip is saving approximately £4,200 on fuel
- A medium-sized vivier-crabber using on average 4,000 litres per trip is saving approximately £1,600 on fuel
- A pair-seiner using on average 13,000 litres per trip is saving approximately £5,000 per trip on fuel
- A larger class of twin-rig whitefish trawler using on average 45,000 litres per trip is saving approximately £18,000 per trip
- A medium-sized scalloper using on average 4,000 litres per trip is saving approximately £1,700 on fuel
- A Eurocutter-style beamer using on average 9,000 litres per trip is saving approximately £3,800 on fuel
Graph showing Brent crude oil prices 2004 – 2016.
Across this selection of vessel types, the percentage of fuel expense to the top line gross ranged from a 2008 high level of 17%-28%, to 6%-11% at the end of 2015.
When reduction of fuel costs is the sole criterium, at 62%-64% there is very little difference across vessel types.
When calculated across a full year, the full-impact of the lower fuel costs prevailing today quickly becomes apparent, ranging from in the region of £80,000 for a vivier crabber to around £350,000 for a larger class of whitefish trawler.
While the drop in the price of crude oil has been reflected in lower quayside fuel costs, fishermen are concerned that similar reductions have yet to be seen in other carbon-based products, including sheet netting and ropes, given that 10 years ago, higher oil prices were used to justify rapidly increased costs for these products.
Buyers and processors should also be benefitting from lower oil prices, particularly in relation to transport costs.
While lower oil prices represent a positive news story from the perspective of the fishing industry, it is important to remember that there are two sides to every coin.
In every UK port associated with the offshore oil industry, largescale staff redundancies are becoming increasingly commonplace. Last week, BP announced 600 job losses from its North Sea operational base in Aberdeen. This situation is the very opposite to the one that prevailed until just a few years ago, when highly experienced share fishermen, faced by crippling fuel expenses, were among the large number of workers attracted to the offshore sector.
The high level of cutbacks and damage limitation measures that oil companies are now implementing, including a marked downturn in seismic survey work, is also a negative factor for fishing vessels. This is particularly relevant in northeast Scotland; where in recent years readily available oil-related work has enabled skippers (and politicians) to paper over the significant cracks radiating from the continual shortage of fishing days and quota availability.
Previous helping to fill in 2-3 months of a year, the downturn in oil jobs, which is already being experienced, will add further pressure on skippers already facing the uncertainties and difficulties associated with the phased start of the demersal discards ban, after which the first of the ‘choke species’ will enter an already difficult equation.
Why have oil prices dropped so markedly?
This a complicated question, but one that ultimately boils down to the simple economics of supply and demand.
Domestic production in USA is reported to have nearly doubled in recent years. As a direct consequence, oil previously imported from from Saudi Arabia, Nigeria and Algeria was suddenly competing for Asian markets. Canadian and Iraqi oil production and exports are rising year after year. Even the Russians, with all their economic problems, manage to keep pumping.
As supply continued to exceed demand, producers were forced to drop the price.
However, oil industry experts say that there are signs that that production is falling in the USA, and some other oil-producing countries, because of the drop in exploration investments. But the drop in production is not happening fast enough, especially with output from deep waters off the Gulf of Mexico and Canada continuing to build, as new projects come online.
On the demand side, the economies of Europe and developing countries are weak, as engine technology in all forms of transport, including fishing boats with considerably more fuel efficient hull forms and stern gear, become increasingly more energy-efficient.
While oil analysists and financial advisors continue to express complex reasons for the downturn in oil prices, many in the fishing industry share the view of it being ‘payback time’; as in the same way as the spike in oil prices was too steep when it first materialised, perhaps the current trough is too deep.
What does the future hold?
Although oil experts predict that a slow recovery in prices will occur, this probably will not be seen for another year, during which time, the possibility of Brent crude continuing downwards towards the $20 mark, should not be ruled out. Given that it costs an average of $50 to extract a barrel of North Sea oil, this highlights the challenges that lie ahead.
Read more from Fishing news here.
Fuel, the one common dominator across the UK fleet, continued to drop in price the week before last when Brent crude oil, used as an international benchmark, sold at under $30 per barrel for the first time since 2004, reports David Linkie.
Above: Fuel being pumped aboard a vessel at Peterhead, as the price of Brent crude continues to fall.
After hitting a record high of $145.61 on July 8, 2008, which created major difficulties for skippers and crews across all types of vessels, oil prices fell sharply by almost $100 towards the end of that year. The next two years saw a steady upward rise towards $120, before prices settled at around $115 in early 2011. For the next three and half years, the cost of Brent crude oil hovered around this level, before starting to nosedive in the second half of 2014 to less than $50.
Early 2015 saw a small recovery towards $65, before prices weakened again, passing below the $30 mark on January 13, 2016.
The drop in Brent crude oil from its all-time peak of $145.61 per barrel seven and a half years ago, to below $30 last week, represents a 79% fall.
In quayside terms, this means that, dependent on geographical location, fuel last week was selling at around 23p per litre, compared to the record high of around 65p per litre experienced in 2008.
A drop of 42p per litre between the two extremes equates to a reduction of 65%.
At a time when most other running costs are creeping ever upwards, including leasing quota, the current low cost of fuel clearly represents welcome news for all fishermen, irrespective of the size or type of boat they are running.
While the financial savings to individual vessels are dependent on a wide range of factors, and therefore cannot be compared, a clearer picture starts to emerge when a boat’s fuel costs are calculated as a percentage against the top line gross.
Ballpark figures, sourced from a representative cross-section of skippers by Fishing News last week, indicated the following savings when based on high and low fuel costs of 65p and 23p per litre:
- A medium-sized twin-rig prawn trawler using on average 10,000 litres of fuel per trip is saving approximately £4,200 on fuel
- A medium-sized vivier-crabber using on average 4,000 litres per trip is saving approximately £1,600 on fuel
- A pair-seiner using on average 13,000 litres per trip is saving approximately £5,000 per trip on fuel
- A larger class of twin-rig whitefish trawler using on average 45,000 litres per trip is saving approximately £18,000 per trip
- A medium-sized scalloper using on average 4,000 litres per trip is saving approximately £1,700 on fuel
- A Eurocutter-style beamer using on average 9,000 litres per trip is saving approximately £3,800 on fuel
Graph showing Brent crude oil prices 2004 – 2016.
Across this selection of vessel types, the percentage of fuel expense to the top line gross ranged from a 2008 high level of 17%-28%, to 6%-11% at the end of 2015.
When reduction of fuel costs is the sole criterium, at 62%-64% there is very little difference across vessel types.
When calculated across a full year, the full-impact of the lower fuel costs prevailing today quickly becomes apparent, ranging from in the region of £80,000 for a vivier crabber to around £350,000 for a larger class of whitefish trawler.
While the drop in the price of crude oil has been reflected in lower quayside fuel costs, fishermen are concerned that similar reductions have yet to be seen in other carbon-based products, including sheet netting and ropes, given that 10 years ago, higher oil prices were used to justify rapidly increased costs for these products.
Buyers and processors should also be benefitting from lower oil prices, particularly in relation to transport costs.
While lower oil prices represent a positive news story from the perspective of the fishing industry, it is important to remember that there are two sides to every coin.
In every UK port associated with the offshore oil industry, largescale staff redundancies are becoming increasingly commonplace. Last week, BP announced 600 job losses from its North Sea operational base in Aberdeen. This situation is the very opposite to the one that prevailed until just a few years ago, when highly experienced share fishermen, faced by crippling fuel expenses, were among the large number of workers attracted to the offshore sector.
The high level of cutbacks and damage limitation measures that oil companies are now implementing, including a marked downturn in seismic survey work, is also a negative factor for fishing vessels. This is particularly relevant in northeast Scotland; where in recent years readily available oil-related work has enabled skippers (and politicians) to paper over the significant cracks radiating from the continual shortage of fishing days and quota availability.
Previous helping to fill in 2-3 months of a year, the downturn in oil jobs, which is already being experienced, will add further pressure on skippers already facing the uncertainties and difficulties associated with the phased start of the demersal discards ban, after which the first of the ‘choke species’ will enter an already difficult equation.
Why have oil prices dropped so markedly?
This a complicated question, but one that ultimately boils down to the simple economics of supply and demand.
Domestic production in USA is reported to have nearly doubled in recent years. As a direct consequence, oil previously imported from from Saudi Arabia, Nigeria and Algeria was suddenly competing for Asian markets. Canadian and Iraqi oil production and exports are rising year after year. Even the Russians, with all their economic problems, manage to keep pumping.
As supply continued to exceed demand, producers were forced to drop the price.
However, oil industry experts say that there are signs that that production is falling in the USA, and some other oil-producing countries, because of the drop in exploration investments. But the drop in production is not happening fast enough, especially with output from deep waters off the Gulf of Mexico and Canada continuing to build, as new projects come online.
On the demand side, the economies of Europe and developing countries are weak, as engine technology in all forms of transport, including fishing boats with considerably more fuel efficient hull forms and stern gear, become increasingly more energy-efficient.
While oil analysists and financial advisors continue to express complex reasons for the downturn in oil prices, many in the fishing industry share the view of it being ‘payback time’; as in the same way as the spike in oil prices was too steep when it first materialised, perhaps the current trough is too deep.
What does the future hold?
Although oil experts predict that a slow recovery in prices will occur, this probably will not be seen for another year, during which time, the possibility of Brent crude continuing downwards towards the $20 mark, should not be ruled out. Given that it costs an average of $50 to extract a barrel of North Sea oil, this highlights the challenges that lie ahead.
Read more from Fishing news here.
