Oil and Gas Opportunity: Start Crude Oil Shipping Company

In oil and gas industry, it is safer and economical to transport crude oil from an oil field to a refinery especially if the locations are far apart.

Crude tankers are transport ships that move bulk volumes of crude oil from the oil extraction facility to the refinery.

The overproduction of crude oil can lead to falling oil prices and this can generate an opportunity to stockpile oil. In the oil and gas sector, one industry that may benefit from this trend is the crude tanker business.

Some factors that determine profitability of the business include the demand, supply and the price of the crude oil in the market.

The significance of the Crude Tanker Business in the oil and gas sector

In this oil and gas business, a crude tanker is an oil tanker built specifically for transporting crude oil (as opposed to refined oil).

During this business, the company that owns the crude tanker leases the ship under a complex contract to oil marketers, oil refiners, chemical companies, or other users like contractors representing governments, consortiums or businesses.

Contract terms vary based on the length of the lease, the quantity of oil to be transported and the route of transport.

Also, the contract includes details of who will bear operational expenses like fuel costs, crew payments and insurance.

Long-term contracts that span several months, or even years, are quite common in this oil and gas shipping company business. It depends upon the size, capacity, and operational expenses; it is common for very-large crude carriers (VLCC) and ultra-large crude carriers (ULCC) to generate daily profits for their owners.

Some Factors Determining the Crude Tanker Business

Over production can lead to oversupply which can lead to decline in oil prices as well. Good energy-consuming nations may use the opportunity to stockpile millions of barrels of oil at the lower prices.

This results in high demand and mass movement of crude oil from points of crude oil extraction to the refineries, which is good for the crude tanker business.

Along with oil supply, geopolitical developments also play an important role in the crude tanker business. For example, non oil producing states would prefer to ship crude oil from nearest oil producing. Short distance may decrease their cost of transportation. The decline in travel distance will nullify many of the gains to be generated.

In the oil and gas sector, oversupply of crude oil also results in decline in fuel cost to operate the ships. This fuel cost, commonly known as bunker price or ship fuel price, is highly correlated with crude oil prices in the market.

Although this decline in oil prices help crude tanker companies lower operation costs, the benefits are often negated in contract negotiations with customers.

Moreover, competition among different fueling centers located across the globe also impacts ship fuel prices and hence the crude tanker revenues.

Crude Oil Tankers Company benefit from such declines, but the majority of these benefits is passed on to end customers.

In the oil and gas sector, the impact of refined products also plays an indirect role in crude tanker business. And the refining process takes crude oil as input, and produces refined oil ready for consumption.

 It depends on the type of crude oil refined; the process also creates sellable byproducts like naphtha, olefins, asphalt, lubricants and kerosene. Different types of crude oil will often be directed to refineries in the countries where there is also a demand for the end products.

The risks involved in the business

Among others, expenses and risks in the crude tanker business include risky routes where pirates may seize the tanker and demand ransom and damage from accidents or bad weather. Insurance against such incidents is a significant operational cost for crude tankers in the business.

 Generally, crude tanker market is highly dynamic, and the driving factors may change drastically due to local and global developments. At times, the long-term performance of crude tanker companies may show disappointing returns. However, there are ample opportunities available for short-term trading.  Investors playing on these stocks should closely track regional, global and geopolitical developments in oil as these will impact the short-term valuations of crude tanker companies.

Though, this type of business is capital intensive but the truth remains that it is a money spinning business.

Before you become a player in this oil and gas shipping industry, you would need to acquire the required license and permits from the required authority before you can be allowed to start lifting crude oil. It is an industry that is regulated because of the activities of pirates and crude oil bunkers.

Therefore, if you are a big time investor and you are looking towards owning a business portfolio in the oil and gas industry, then one of your options is to start a crude oil shipping company.