FUELLING OPERATIONS
09th February 2016
Forming a Bunker Procurement
Strategy
 Introductions
 Richard Butler –
Teekay
 Rob Phillips –
ArcelorMittal Shipping
 Aim for todays discussion
 Questions
Which strategy is the right
strategy?
No
Right
Answer
Your Fleets trading characteristics
Spot / Tramp
Liner Trade
Port A
Port A
Port B
Port C
Port B
Port C
Understand Your Critical Success
Factors?
CSF Priorities
 Price
 Timing
 Quality
 Risk
 Credit
 Resources
Weighted Value
Positioning Options….
Option
Benefit / drawback
 Working the spot market
- Hero to Zero
 Contract Volumes
- Guarantee supply / min monthly
quantity. Understand the formula.
 Floating prices
 Natural hedging
 Speculative hedging
 Risk management hedging
 3rd Party consolidation
- Avoid short lived spikes
- Make most of a weak dropping
market, utilising tank storage.
- Winning doesn’t come easy
- Lock in your price / no hindsight if
market drops
- Volume is king however needs high
level of collaboration
The Oil Market – a Year in review

Rotterdam Price Change pmt
$226
2016 Janu
$103
$436
2015 Sept
LSMGO
$222
IFO
$808
2014 Sept
TEEKAY
$545
Fundamentals – what happened?
 Opec maintaining output during reduced demand
and high global supply
 US decreasing import levels due to increase shale oil
production
 Weakening Chinese economic growth
 Increasing US inventory storage
 Optimism on the Iran nuclear program and gradual
lifting of Western sanctions
 Libya export back online after civil war
 US Fed interest rate strengthening the US$
 Geo political factors in Middle East ? Lesser impact
7
Strategy Resourcing
 A trusted broker. Eyes and ear of the industry and




neutrally positioned.
Traders. Make sure high level of collaboration, trust,
transparency. Non platts ports spread your support to gain
market knowledge unless open margin. Utalise to gain
volume discounts.
Market watch tools. Brent crude and ICE Gas index
software, the need to monitor, anticipate and respond to
market movements.
The relationship of Crude / barge price index to RMG and
DMA bunker physical pricing. i.e Rott barges, CIF Med
barges.
Appraisal and understanding of economical, geopolitical
and financial markets on the oil commodity market, how
influential to us? How to monitor?
Strategy Fundamentals
Positioning. Spot
buy, hedge, floating
average. Fixture and
Payment terms.
Negotiating
techniques.
ONE TEAM Internal
collaboration
RISK
MANAGEMENT
Decision on tiering supply
base, agreeing a product
spec. Providing best
practice guidance to vessel
staff and utilise trusted 3rd
parties on surveys and lab
testing.
QUALITY
ASSURANCE
Mutual understanding on
MEAT. What delivers the most
commercial value to the
company on each stem?
CONSOLIDATE
STEMS
EXPERTISE /
INTELLIGENCE
Where possible
maximise and
aggregate bunker stems
together. Volume is the
greatest leverage for
buyer. Large market
share enables better
bargaining power and
cheaper fuel prices.
Knowledge to feed effective
voyage planning with cost
effective bunkering options at
minimal risk exposure. Bunker
optimisation is where most $ is
saved.
Working Example…Voyage
Intelligence, Opportunistic savings
& Bunker Optimising
Ship departing
Port A bound for
Port B to load She
needs bunkers to
complete voyage.
The Danger of
Assumptions
Operator requests
bunkers at Port C
Port A
Port B
Port C
Port D
Port E
$$$$
$
$$
$$
$$$$
(Saving $14pmt / $32,000 total)
ECA low sulphur purchase strategy
 LSMGO premium over IFO decreased considerably
 Ultra low sulphur fuel oils available at same/increased




discount
BUT - LSMGO higher calorific value
In % terms discount for ULSFO has improved
Technical problems/limitations persist – limited tank
space, high pour point, inability to mix
Current market – demonstrates exposure to market trends
– scrubbers viable 2 years ago if 300 usd premium – now?
Optimal purchasing strategies in
changing market conditions
 Range-Bound Market
 Falling Market
 Rising Market
 Long term - When both sentiment and fundamentals
are bullish
 Short term - When sentiment is bullish despite bearish
fundamentals
Optimal purchasing strategies in
changing market conditions
 Range-Bound Market
 Falling Market
 Rising Market
 Long term - When both sentiment and fundamentals
are bullish
 Short term - When sentiment is bullish despite bearish
fundamentals
 Sentiment is King
Optimal purchasing strategy in
stable range-bound market
 Strong resistance & support levels that may not be
broken for several weeks
 Even mix of bullish and bearish influences
 Sentiment neither bullish nor bearish
Brent crude, March – August 2013
Optimal purchasing strategy in
stable range-bound market
Brent crude, March – August 2013
Optimal purchasing strategy in
stable range-bound market
Brent crude, March – August 2013
Optimal purchasing strategy in
stable range-bound market
•
•
•
•
Above 103.5
102.5-103.5
101.5-102.5
Below 101.5
- Hold
- Buy only if prompt
- Buy
- Buy 50% of order book
Brent crude, March – August 2013
Optimal purchasing strategy in
falling market
 Weak support levels
 Bearish market factors
 Bearish sentiment
Brent crude, May – December, 2015
Optimal purchasing strategy in
falling market
Brent crude, May – December, 2015
Optimal purchasing strategy in
falling market
Above 65
64-65
63-64
Below 63
- Hold
- Buy only if prompt
- Buy
- Buy 50% of order book
Brent crude, May – December, 2015
Optimal purchasing strategy in
falling market
• Hold off where possible
• Buy during perceived dips
• Beware of technical rebound –
spread orders & risk
Brent crude, May – December, 2015
Optimal purchasing strategy in
technical rebound to stable
market
• Back to stable range bound
market
• Recognise sentiment early &
adapt purchasing strategy
Brent crude, May – December, 2015
Optimal purchasing strategy in
rising market
 Strong support levels
 Bullish market
factors
 Bullish sentiment
Rising market with firm sentiment
despite weak fundamentals
 Investor driven
 Market manipulation
 Rumours exaggerated & weak fundamentals
overlooked
Brent crude, December 2015 – 2 Feb 2016
Rising market with firm sentiment
despite weak fundamentals
 Spread risk evenly
Brent crude, December 2015 – 2 Feb 2016
Rising market with firm sentiment
despite weak fundamentals
 Spread risk evenly
 Consider forward formula/averages if believe market will soften again
Brent crude, December 2015 – 2 Feb 2016
Rising market with firm sentiment
despite weak fundamentals
 Spread risk evenly
 Consider forward formula/averages if believe market will soften again
 Mix forward formulas with spot purchases to provide even risk cover
Brent crude, December 2015 – 2 Feb 2016
Conclusion
 Don’t lose faith in a good purchasing strategy because
of unusual market movements, but always be ready to
adapt your strategy according to market sentiment
 Make natural hedges where possible by spreading
orders
 If financial hedging or fixing on forward formulas,
combine with spot stems
 Remember that sentiment is King
International Bunker Buyers Club