The impact of crude oil price on the tanker market

TLDR

Crude oil transport services are a derived demand linked to international trade, with carriers moving oil from producers to consumers. This study investigates how fluctuations in oil prices affect the tanker market using a structural vector autoregressive model. The authors decompose oil price shocks into supply and non‑supply components following Kilian and Park, then assess the tanker market’s response to each via impulse‑response analysis within the SVAR framework. Results show that supply shocks significantly influence the tanker market, while non‑supply shocks have negligible impact; cumulative responses are positive but smaller than other shocks, aligning with high freight rates yet low operator profits.

Abstract

The demand for crude oil transport services is a derived demand, which is dependent on international trade of crude oil and crude oil carriers transport crude oil from producer regions to consumer regions. The purpose of this study is to investigate the relationship between fluctuations in oil prices and the freight market (hereinafter referred to as 'the tanker market') using a structural vector autoregressive (SVAR) model. Referring to Kilian and Park's method of structural decomposition of fluctuations in crude oil prices, crude oil price shocks are classified into crude oil supply shocks and crude oil non-supply shocks in this study. Also, the response of the tanker market to different shocks is examined using the impulse response analysis. The empirical results provide evidence that crude oil supply shocks have significant effects on the contemporaneous tanker market. However, the impact of crude oil non-supply shocks is insignificant. In addition, the accumulated responses of the tanker market to crude oil non-supply shocks and crude oil supply shocks are positive but they are far lower than other shocks to the tanker market. Empirical results from this research are consistent with the fact of high crude oil tanker freight rates but low profits for tanker operators.