Last week we saw a good example of how the struggle to slow climate change is showing up in the real economy, with potentially very significant consequences as the cost of protecting the environment begins to be reflected in natural resource prices.
Large vessels such as container ships are forced by new regulations to use fuel with a lower sulphur content but, as this type of oil is relatively rare, the cost has risen to close to $100 a barrel.
The costs born by shippers will be passed onto their customers and ultimately this could mean higher prices for all products being transported. We have heard of the huge sacrifices and the massive changes we will need to make in order to slow global warming and avert serious climate change and maybe now we will start to see the costs factored in to the things we buy. The EU’s threat of a carbon tax on Chinese imports is another example. This could eventually lead to high(er) inflation without any significant change in supply or demand, something the financial world is not prepared for.
New shipping fuel rules push specialised oil towards $100 a barrel, the FT confirms. Changes to shipping fuel rules mean that a few selected grades of crude have risen back towards the prices reached a few years ago, even as most oil still changes hands for $65. Pyrenees, an Australian crude produced by BHP Group, last week shocked traders by selling for almost $95 a barrel, with refiners coveting its rare profile of being a heavy thick oil that is also low in sulphur. Refiners are willing to pay massive premiums to secure the grade – production is only about 15,000 barrels per day – as its low sulphur content and heavy weight make it ideal for blending into shipping fuel, which from January 1 has been restricted globally to much lower sulphur content.
Global freight rates have risen as shippers look to pass on the cost to their customers. On the horizon for the shipping industry is a broad environmental push back against oil, forcing a wider rethink of how ships are powered. Expect further mini-spikes for specific fuels as the industry adapts to tougher environmental regulations.
Richard McCreery is an investment adviser with over 20 years experience, based in the South of France. www.rmwm.jimdo.comRegulated in France by the Association Nationale des Conseils Financiers (ANACOFI), registration N° E004136. ORIAS member 13000050