A Quantitative Model of the Oil Tanker Market in the Arabian Gulf

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See all articles by Lutz Kilian

Lutz Kilian

Federal Reserve Banks - Federal Reserve Bank of Dallas; Centre for Economic Policy Research (CEPR)

Nikos K. Nomikos

Cass Business School, City University London

Xiaoqing Zhou

Federal Reserve Banks - Federal Reserve Bank of Dallas

Date Written: September 4, 2020

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 the cost of operating tankers, including bunker fuel costs. Our analysis shows that time charter rates are largely unresponsive to tanker cost shocks. In response to higher 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 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 Classification: Q43, R41

Suggested Citation

Kilian, Lutz and Nomikos, Nikos K. and Zhou, Xiaoqing, A Quantitative Model of the Oil Tanker Market in the Arabian Gulf (September 4, 2020). CFS Working Paper, No. 648, 2020, Available at SSRN: https://ssrn.com/abstract=

Lutz Kilian (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Nikos K. Nomikos

Cass Business School, City University London ( email )

London, EC2Y 8HB
Great Britain

Xiaoqing Zhou

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

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