Working Paper: CEPR ID: DP14798
Authors: Lutz Kilian; Nikos Nomikos; Xiaoqing Zhou
Abstract: Using a novel dataset, we develop a structural model of the Very Large Crude Carrier (VLCC) market between the Arabian Gulf and the Far East. We study how fluctuations in oil tanker rates, oil exports, shipowner profits, and bunker fuel prices are determined by shocks to the supply and demand for oil tankers, to the utilization of tankers, and to bunker fuel costs. Our analysis shows that time charter rates respond only slightly to fuel cost shocks. In response to higher fuel costs, voyage profits decline, as cost shocks are only partially passed on to round-trip voyage rates. Oil exports from the Arabian Gulf also decline, reflecting lower demand for VLCCs. Positive utilization shocks are associated with higher profits, a slight increase in time charter rates and slightly lower fuel prices and oil export volumes. Tanker supply and tanker demand shocks have persistent effects on time charter rates, round-trip voyage rates, the volume of oil exports, fuel prices, and profits with the expected sign.
Keywords: shipping; VLCC; crude oil; bunker fuel; tanker; voyage; time charter; profits; exports; passthrough
JEL Codes: Q43; R41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decrease in time charter rates (E43) | Decrease in oil exports from the Arabian Gulf (F69) |
| Positive fuel cost shock (L90) | Decrease in time charter rates (E43) |
| Positive utilization shocks (D11) | Increase in profits (D33) |
| Positive utilization shocks (D11) | Increase in time charter rates (G19) |
| Positive utilization shocks (D11) | Decrease in fuel prices (Q31) |
| Positive utilization shocks (D11) | Decrease in oil export volumes (F69) |
| Reduced tanker supply (Q31) | Higher voyage profits (L92) |
| Increased tanker demand (L90) | Higher voyage profits (L92) |
| Tanker supply shocks (Q31) | Persistent effects on time charter rates (G19) |
| Tanker demand shocks (L90) | Persistent effects on time charter rates (E43) |
| Tanker supply shocks (Q31) | Persistent effects on oil export volumes (F69) |
| Tanker demand shocks (L90) | Persistent effects on oil export volumes (F69) |