Savvy oilfield investors around the world are keeping an eye on Chinese shipyards that produce most of the large (40,000-tons-plus) dry bulk freighters that carry the building blocks of modern civilization. This includes iron ore, fertilizer, copper sulfate, and thousands of other materials that sustain the world’s 7.5 billion consumers.

Savvy manufacturers and refiners, when they see a downturn on the horizon, stop ordering raw materials. So when shipowners see a drop in the ocean freight market, they stop ordering ships. The link is demand. Industrial demand takes the lion’s share of world oil output, and when industry shrinks, oil prices tank. That’s why it makes sense for oilfield investors to watch Chinese shipyards.

According to a March 22 market report from BIMCO (Baltic and International Maritime Council), the world’s largest international shipping association, there have been only four dry bulker newbuilding orders in the first 12 weeks of 2016 — a fraction of previous year’s activity. This despite a 12-year low in newbuilding prices offered from the shipyards, the BIMCO report says. You heard it right — exactly four newbuilding orders so far this year. This despite a record number of bulkers being sent — often under their own power — to Far Eastern shipbreakers. No longer in the realm of “futures,” present freight rates are so far below the cost of operating a bulker that shipowners are having to subsidize cargo out of their own pockets or see their ships go into lay-up. It’s either that or tearfully instruct the master to steam for the breaking yard.

Oil prices aren’t entirely linked to industrial production, of course. The supply side has always been important, but the news isn’t good here either. OPEC has been making noises about limiting production, but there are forces — the Iraqi surge in production, the release of Iranian oil on the world market, and cash-starved Venezuela — that will weaken any enforceable agreement. Easy access to fracked hydrocarbons and ongoing advances in drilling and production will only serve to increase supply, regardless of demand. For offshore service vessel operators, whose customers drill and produce in a difficult and expensive environment, the ability of land-based oil companies to turn on the spigots when demand increases will mean additional delay before any upturn comes to the offshore oilfields.

These issues were certainly factors last week's Gulf of Mexico lease sale, which, according to the New Orleans Advocate, brought no bids for the eastern region and netted the government a paltry $156 million for the central region. BOEM officials said it was the “fourth-lowest total for sales in the central region — traditionally the Gulf’s most active territory — since sales started back in 1983.”

One unique feature of oil futures is the ability of a single incident — for example, an attack on shipping in the Straits of Hormuz — to overturn any number of long-term factors, but market forces still deserve consideration. In fact, many oilfield service companies in the U.S. Gulf in the 1980s probably wished that they’d paid closer attention to early economic indicators, including the state of far-away shipyards and the dry bulk cargo market.

A collection of stories from guest authors.