The impact of oil price shocks on the seaborne crude oil transportation industry

Authors : Abdullah Açık, Sadık Özlen Başer

Pages : 697-706

View : 74 | Download : 37

Publication Date : 2018-12-31

Abstract :Despite technological advances, dependence on fossil fuels in the world is still ongoing and does not seem to be ending soon. These resources have been randomly distributed around the world, and a great deal of their inter-country trade is carried out by sea. One of the most important of these sources is crude oil, which constitutes about 18% of the tonnage of the transport made in 2016. For this reason the crude oil transportation sector is very large and includes too many players. Also the sector is a capital intensive sector since it is carried out with huge vessels. For all these reasons, it is vital for shipping investors to know the structure and mechanics of freight rates, which is the main motivation and income for transportation activities. Undoubtedly, fluctuations in tanker freight rates are inevitably affected by fluctuations in oil prices. The impact of these fluctuations may theoretically be in two ways, first, as the demand for oil is affected by its price, the demand for its transport may be directly affected, and this may cause fluctuations in freight rates, secondly, as bunker cost is the biggest cost item in transportation activities, fuel prices may cause fluctuations in freight rates. For instance, if the price of oil increases, shipowners demand higher freights in the face of increased operation costs. In this context, the aim of this study is to determine the impact of positive or negative shocks of commodity price on the transportation sector by examining the asymmetric causality from crude oil price to freight rates in the tanker market. The data set consisting of 239 observations on a monthly basis covering August 1998 and June 2018 was used in the study. Baltic Dirty Tanker Index (BDTI), which is calculated based on certain routes in world crude oil transportation, and WTI spot crude oil price variables were used to determine asymmetric causality between oil price and freight rates. The asymmetric causality test developed by Hatemi-J (2012), enabling examination of causality by separating negative and positive shocks, was used. The results showed that positive shocks in crude oil prices are the cause of positive shocks in the freight rates in the tanker market. It is also determined that negative shocks in oil prices are the cause of negative shocks in the freight rates. According to these results, it can be said that cost-driven shocks are more influential than demand-driven shocks in the covered period.
Keywords : Asymmetric causality, tanker market, oil price, freight rate

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