Analysis of Fuel Oil and Diesel Demand Price Elasticity in the Global Maritime Sector

Maritime transport has a major cost advantage in the transport of bulky and heavy cargo due to its low per tonne cost. This paper assesses the demand for the two types of fuel that are used in cargo and passenger ships (bunker fuel oil and gas oil –diesel) in the world. We first estimate the total demand for maritime transport and then proceed to calculate the associated demand for fuel demand. Given the differential market characteristics of the two fuel types, we use two different equations to estimate the demand for them.
The results show that both fuel oil and diesel demand are positively correlated with the volume of maritime traffic in a significant manner. Our observations indicate that the changes in overall economic conditions affect the volume of international trade and resultant demand for fuels used in maritime transport. We also see that the demand for each of the two fuels, namely fuel oil and diesel are negatively correlated with their respective real prices in a significant manner.