Shares of three major oil tanker companies based in Bermuda have rocketed as oil prices plummet.

In the past three months Frontline has seen its share price boosted 159 per cent, while shares in Teekay Tankers are up 78 per cent, and shares in Nordic American Tankers have risen 60 per cent.

The three companies are well placed to benefit from the opportunities presented by a market structure known as contango, which allows traders to lock in profits by buying oil now and selling it for delivery at a later date when prices are higher. The oil is stored in oil tankers that are chartered at daily rates.

Tanker charter rates have been rising on the increasing demand from traders seeking to profit from the widening contango. Oil prices have dropped around 50 per cent since last June, with Brent crude oil dipping below $50 a barrel earlier this week.

The contango opportunities are just one aspect of the positive knock-on effects of falling oil prices for shipping firms, said Jens Alers, group director of Bernhard Schulte Shipmanagement (Bermuda), which has offices in Par-la-Ville Road.

Bernhard Schulte Shipmanagement is a maritime services company with a managed fleet for more than 674 ships.

“The 50 per cent reduction in the cost of crude oil is extremely good for shipping in general and owners and charters of oil tankers specifically,” said Mr Alers.

For ship owners and those who charter ships the most immediate benefit comes from the lower cost of bunker fuel — the dense oil used to power vessels.

“The price of bunker fuel has come down dramatically,” Mr Alers said. “When you consider the overall cost of operating a ship, a reduction of 50 per cent in bunker fuel cost is an enormous benefit to the user of the ship or the owner. That’s a benefit that is felt across the board.”

Mr Alers said a tonne of bunker fuel cost $650 last June, but today can be bought for $320.

As reported in Wednesday’s Royal Gazette, container ship companies serving Bermuda are to pass on fuel savings to customers. Bermuda Container Line, which operates the Oleander, is reducing its fuel surcharge per 20ft container from $180 to $152 on February 1. Somers Isles Shipping and Bermuda International Shipping Ltd, which operate the Somers Isles and Bermuda Islander respectively, are also altering their quarterly fuel surcharge.

“On the income side, the ship owners who benefit most from the decline in oil prices are the owners of oil tankers. That’s the result of two factors,” said Mr Alers.

“One factor is the amount of crude oil being shipped around the world, which has been growing at a steady pace.”

He said that, despite the recessionary trend in Europe, demand for oil was high in other markets, such as China, India and the United States. Coupled with this is the actual number of ocean-going oil tankers available.

“The supply of new tonnage [tankers available for trade] has been rising slower than demand. When that happens the rates for tankers go up.”

Mr Alers said the other factor was the contango.

“That is something that is a hot story. Oil traders are chartering tankers to store oil at these rock bottom prices. They are buying it cheap with the expectation that oil goes back up,” said Mr Alers.

“They are taking into consideration the cost of chartering the ship and the expectation of making $20 or $30 profit per barrel of oil. The traders expect the price of oil to flex back.”

However, as the contango widens the daily rates for oil tankers are also rising. Mr Alers said last June the daily rate for a VLCC — a very large crude carrier capable of holding around two million barrels of oil — was around $15,000, today it is $60,000.

“It is a major benefit for the ship owners who are trying to cover their costs. There is quite a rush for ships,” he said.

It’s not always such a rosy picture, though. Mr Alers said he didn’t have any VLCCs to worry about “because I like to sleep at night”.

He added: “The volatility is enormous. Rates can drop in no time. The only way to cover yourself is to try to fix your rates for a year. I’m sure that’s what the tanker owners are doing.”

Yesterday Frontline shares closed at $3.74 (up 11.9 per cent), Nordic American Tankers was at $11.84 (up 6.2 per cent), while Teekay Tankers closed on $6.08 (up 9.7 per cent).