The cost of transporting crude oil hit record levels last month as the war in Iran reshuffled routes and trade models and tied up more tankers on inefficient and lengthy journeys.
Rates for supertankers soared in September to more than $1 million a day on the Persian Gulf route to China, a record high.
September’s record was quickly broken as freight rates climbed another 40% in the first week of October alone, reaching $1.4 million per day on the Gulf to East Asia voyage this week, according to data compiled by Bloomberg.
Increased oil flows from the Strait of Hormuz, primarily driven by ship-to-ship transfers (STS) in the Gulf of Oman, are stranding supertankers for weeks while awaiting transfers out of the Strait, limiting the availability of very large crude carriers (VLCCs) for other key global oil trade routes, such as the US Gulf Coast to Asia.
Inefficient oil loadings in the Middle East and the resulting tight supertanker market created a ripple effect that spread to the market for small ships, Aframax and Suezmax, whose demand and day rates also increased amid a shortage of supertankers.
So the war in Iran and the oil crisis have also turned into a real shipping crisis, with record rates being broken almost every day. The extremely high tariffs add millions of dollars to the cost of a single crude oil shipment, driving up oil and fuel prices even further. Related: U.S. Oil Drilling Continues to Grow
Shuttle transport through the Strait of Hormuz is “very inefficient”, Russell Hardy, chief executive of Vitol, the world’s largest independent oil trader, said at the Energy Intelligence Forum in London this week.
“We started this conflict with a crude crisis. Then it turned into a commodity crisis. Now we have more crude oil coming out of the Middle East, but it’s turning into a shipping crisis,” Hardy added.
“There really isn’t enough shipping to go around,” the executive noted.
Fares on the U.S. Gulf route to Japan are skyrocketing and a supertanker has reportedly been offered a total of $82 million for the journey, up 50% from just three weeks ago, Bloomberg reports.
Commodities trading giant Trafigura has reportedly chartered a supertanker to ship crude from the U.S. Gulf Coast to China for a total of $76 million, a source with knowledge of the matter told CNBC this week.
The $76 million fee for the tankers is ten times higher from 7 to 10 million dollars before the war. This suggests that the cost of transportation for the trip is now around $38 per barrel of oil.
Many tankers in the global fleet are now engaged in STS transfers out of the Strait of Hormuz and, with flows rebounding, more are stuck on this route, leaving the rest of the market very short of vessels to ship oil from other parts of the world.
Record rates for shipping crude from the Persian Gulf and Gulf of Oman are luring tankers into the risky but highly lucrative Middle East trade, leaving the market short of ships elsewhere.
The supertanker crisis has also caused dayrates for Aframax and Suezmax to rise, as oil producers and buyers turn to the smaller vessel market amid very limited availability of supertankers.
“Oil supply continues to increase and shipping data shows that regional Middle East crude exports actually exceeded pre-war levels for several days in late September,” shipbroker Fearnleys said in its weekly report on Wednesday.
“The VLCC’s little sisters Suez and Aframax are showing no signs of slowing down either, so there’s really nowhere to hide at the moment,” Fearnleys analysts said.
“As transportation costs rise, the economics of oil trading are becoming increasingly strained,” Argus experts said Thursday.
“Freight premiums add tens of dollars per barrel to the costs of delivered crude, raising questions about demand destruction and the sustainability of current market prices.”
By Tsvetana Paraskova for Oilprice.com
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