Infospectrum Insights

Market developments have again brought political risk to the fore

Wholesale oil prices have started the new year in upbeat mood after coming sharply off the boil in the fourth quarter (4Q) of 2021. The market had come under serious pressure towards the end of the year, slumping to around USD 65 per-barrel in mid-December, weighed down by a number of factors. The widely-traded US West Texas Intermediate (WTI) grade fell from a 2021 peak of around USD 83 per-barrel in October, to just above USD 65 per-barrel in mid-November. A recovery materialised in late December, and the market is now showing an even more bullish attitude in early January, with WTI prices moving back up towards the USD 80 per-barrel mark.

Initiated by the pandemic, pressure on the current global supply chain is likely to continue for the near to-mid-term, providing opportunities and risks for liner operators, and challenges for cargo owners

The COVID-19 pandemic has not only exacerbated long-standing shortfalls in the global supply chain, but it has also created new pressure points, including crew quarantines, local port shutdowns, and labour shortages. During the spring and summer of 2020, while ports mostly remained open to support continuing supply of essential goods, non-essential trades were actively deferred. At the time, given the uncertainty of the pandemic’s impact upon economic demand, as of March 2020, container sector analysts were forecasting a global decline in containerised cargo volumes of about 10% year-on-year for the full year. It was in this context that, by July 2020, as initial lockdowns were lifted, circa 9% of the global container fleet capacity (in excess of 300 vessels) had been idled. As pent-up demand drove global growth, there was a rapid readjustment of liner capacity as vessels quickly rejoined their former trade routes.

On 10 November 2021, 22 countries signed the Clydebank Declaration (the Declaration) at the sidelines of the UN COP26 climate conference in Glasgow

The Declaration agreed to establish “at least six green corridors”, defined as zero-emission routes between two or more ports, by 2025, with “many more” to be in operation by 2030. The aim of these corridors is to hasten the use of zero-emissions vessels (as opposed to “net zero” vessels) in deep-sea trades, and accelerate the development of the associated infrastructure, and implementation of required regulations. While it is still early days, with details of these green corridors still to be mutually agreed in coming months (if not years), the Declaration foresees bringing together national governments, non-governmental organisations, and private sector participants, including fuel producers, vessel operators, and cargo owners, in a voluntary and collaborative approach. For the time being, these corridors are not expected to be exclusive, with conventionally-fueled ships allowed to continue operations on these routes alongside zero-emissions vessels. Signatories to the pact include Australia, Canada, Germany, Japan, Morocco, New Zealand, France, Netherlands, Germany, Finland, Denmark, the UK and US; China and India are notably absent.

With an eye on 2022 and beyond, contextualising the "Three C's" of creditworthiness (Character, Capacity and Capital), Infospectrum highlights the collective and increasing relevance of the "New Three C's", namely, Climate, Covid, and Commodities to maritime risk

The uncertainty and volatility associated with these "New Three C’s” are expected to increasingly play a key role in counterparty risk appraisal in the near term.

Almost one year on from Joe Biden's US election victory, his mandated moves to begin the "transition" (as he put it) from oil have taken a knock.

Well, several, to be more precise. During campaigning, Biden expressed the view that the US could shake off its reliance on oil and gas by the year 2050, and pledged to limit the spread of fracking (hydraulic fracturing), for example, by withdrawing leases on federal land. New oil and gas exploration approvals were also expected to be cut in the coming years, to reduce future oil and gas production activity. But, the first eleven months of the Biden Presidency have been dogged by an acute energy crisis, which has reinforced the importance of the United States in global oil and gas supply and thrown transition plans into confusion. We already know that several banks and pension funds have pledged not to fund new oil and gas projects, citing environmental concerns. And these moves, now accompanied by government pledges along the same lines, appear to be creating the impression of an impending future shortage of oil and gas. Hence, prices have escalated as a natural response to this fear.

Ask consumers of fuel what their priority is, and most will say they want stable prices and security of supply.

This week, we spoke to Infospectrum's Chief Technology Officer about working at Infospectrum and developing our in-house solutions.

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Whether viewed as regulatory compulsion, stakeholder activism or corporate mission, Environmental, Social and Governance (ESG) compliance is the new frontier of the maritime and commodities sectors.

Driven by an unexpected surge in demand and record profitability in the last 12 months, owners have returned to the newbuilding market to capitalise on the global requirements for additional capacity.

While war chests have evidently been sufficiently strengthened to prompt a sharp increase in tonnage acquisitions and newbuilding orders, it would be wrong to dismiss the prospect of any future risks down the line for investors.

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