Oil shipping rates have experienced a significant rally, driven by tightening global tanker supply due to expanded U.S. sanctions on Russia’s fleet and heightened demand for tankers to load Middle Eastern oil destined for Asia.
Key Highlights:
Recent Chartering Activity:
On Tuesday, Shell booked three Very Large Crude Carriers (VLCCs) at a rate of Worldscale 70 to load Middle East crude in early February.
Shenghong Petrochemical, a Chinese refiner, secured two VLCCs at the same rate for the same loading period.
Market Dynamics:
Traders are anticipated to seek additional tankers for crude loading from Saudi Arabia in February, which could further elevate freight rates.
Unipec, China’s oil trading company, has booked 10 tankers to transport oil from the Middle East, totaling 23 vessels fixed since Friday.
Rate Increases:
The rate for a VLCC on the Middle East to China route (TD3C) rose to WS70.45, an increase of WS10.75 from the previous day, equating to a 15% rise and bringing the charter cost to approximately $4.1 million.
Other routes have seen similar increases, with rates from the Middle East to Singapore rising to WS71.80 and from West Africa to China climbing to WS70.67.
Shipping crude from the U.S. Gulf to China now costs $8.715 million per voyage, a rise of $1.895 million since Tuesday.
Aframax Tankers:
Aframax tankers chartered to ship Russian ESPO Blend crude from Kozmino to China have been fixed at $6 million to $6.5 million, a fivefold increase from last week, with offers now reaching $8 million.
Product Tankers:
Freight costs for “clean products” like gasoline, diesel, and jet fuel have surged by about 10% since the start of the week due to increased inquiries ahead of the Lunar New Year.
The cost to ship 40,000 metric tons of refined fuels from South Korea to Southeast Asia has risen from $480,000 to $685,000.
New sanctions on medium-range (MR) tankers have further escalated freight rates, although some experts express skepticism regarding a significant rise in rates, citing that sanctioned product tankers comprise only 3-4% of the global fleet.
Impact on Refiners:
The surging freight costs and spot premiums for Middle Eastern crude are putting pressure on Asian refiners’ margins.
Complex refining margins in Singapore have dropped to $1.17 a barrel, down from $4.69 on January 9, prior to the sanctions announcement.