When oil prices skyrocket, financial effects go beyond a fill-up at the local service station or the most recent home heating oil delivery. With oil prices hovering at about $100 a barrel, one of the state's economic sectors keeping a close watch is the profitable shipping industry. With a number of ship owners, brokers, petroleum transporters and maritime financiers headquartered in lower Fairfield County, the recent crude oil boom could manifest itself with higher rates to transport goods, tougher fuel contracts for ship owners and possibly lowered demand for new ships to be built.
"I don't think it's going to be positive," said Per Heidenreich, chairman and founder of Norwalk-based Heidenreich Marine, a marine transportation and logistics company also known as Heidmar. High oil prices "affect the bottom line."
Some shipping industry experts aren't convinced that the recent benchmark of $100 a barrel will have an effect on the sector, which has enjoyed huge profits the past four years.
Mark Martecchini, head of ship owning Stolt Tankers and Terminals, a division of Stolt Nielsen that has offices in Norwalk, said the rippling effects of high oil prices are not hurting his company.
"Growth elsewhere in the world is keeping Stolt's shipping volumes robust," Martecchini said. "With the dollar weak and oil prices high, U.S. natural gas-based exports are very competitive, and volumes are growing."
When the shipping industry started booming in 2004, it went hand-in-hand with a surge in oil prices, a byproduct of soaring demand from the United States, Japan and Russia, and the emerging markets of China and India, industry experts said.
In 2004, owners of VLCCs - short for very large crude carriers - were collecting about $90,000 a day in operating cash flow on the route between the Persian Gulf and the United States.
Oil industry observers said as long as demand remains strong, the marine shipping side can still be profitable.
Rates for VLCCs are about $40,000 a day, said Steven Guveyan, executive director of the Connecticut Petroleum Council, a lobbying group for the state oil industry.
Even with U.S. demand for gasoline down about 1 percent this year, "It's not a large drop," Guveyan said. "There's still the rest of the world and other people who need oil."
Rates to transport crude from the Caribbean on Aframax tankers - smaller than VLCCs - has fallen in recent weeks because of a glut of ships and weaker demand.
Late last month, rates declined about 24 percent because of lower demand in the Mediterranean and North Sea markets, according to published reports.
Demand also has softened because of poor refinery utilization rates in the United States. Domestic refineries used about 82.2 percent of their capacity, according to a March 26 Department of Energy report, the lowest since October 2005.
Higher oil prices have affected demand. But in this case, it could be the slowing U.S. economy that is hurting the shipping industry, said Doug Maurinac, a Houston-based research analyst at Jeffries, an investment bank that has a department focused on the maritime oil service industry.
"Rising fuel costs do influence demand, but at the same time, I don't think you can pin all of this on rising fuel costs," Maurinac said. "It has more to do with the failing U.S. economy."
Heidenreich said he was "personally skeptical" about the state of the shipping industry in relation to the oil surge, especially in two to three years.
The number of crude tankers is expected to increase by about 46 percent over the next three years, Heidenreich said. If higher oil prices and a slowing economy continue to cut into demand, it could create a surplus of ships, he said.
"The outlook for 2008 is still good," Heidenreich said. "In 2009, we need a good sustainable market to enable use to absorb the number of ship orders."
Like automobile owners, shipping industry officials must account for how higher oil prices affect their ability to fuel their vessels.
In some cases, it could cost as much as $1.4 million to run a tanker with about 3,000 metric tons of fuel a day, according to published reports.
A large oil tanker generally consumes about 20 tons to 25 tons of fuel a day.
In many cases, the higher fuel prices are already accounted for and passed on in shipping rates, industry observers said.
"It's an additional cost, like anything else," said Peter Drakos, president of the Connecticut Maritime Association and a maritime lawyer in Norwalk at Blank Rome LLP.
"No question they're feeling the pressure," said John Parry, a senior analyst at John S. Herold Inc., a Norwalk-based research firm specializing in the analysis of companies, transactions and trends in the global energy industry.
Many ships run on bunker fuel - which is derived from the heaviest substances in a barrel of crude - but vessels that use diesel fuel in any way could be affected, Parry said.
Heating oil futures, which are synonymous with diesel fuel, were trading at about $3 a gallon on the New York Mercantile Exchange late last month.
The industry also has been affected by the declining availability of bunker fuel, said Ian Workman, vice president of international sales for Trans-Tec Services in Greenwich, a subsidiary of Miami-based World Fuel Services Corp.
"Suppliers don't want to get caught with high inventory if prices come down later this year," Workman said. "So they're trying to keep the availability quite low."
Overall, "there's not a real shortage of fuel," he added. "There's really plenty to go around."
Taking a cue from the "green movement" toward more energy efficiency, some shipping companies said they're looking for ways to reduce oil intake.
"While there's not much one can do about the price of bunkers, there are ways to increase voyage efficiency and to reduce fuel consumption," Martecchini at Stolt said. "In 2005, Stolt launched an energy management research project aimed at finding ways to reduce fuel consumption. Results of that research have identified a number of both innovative and practical solutions that are currently either being tested or deployed to the Stolt fleet."
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