Supertanker Shortage Pushes Up Oil Freight Costs

The shortage of very large crude carriers (VLCCs) and other supertankers has tightened after the US-Iran conflict and a large speculative bet by a South Korean tycoon. Vessels that normally shuttle oil through the Strait of Hormuz are being redeployed, while others detour around Africa to reach Mediterranean loading points. The resulting strain leaves many routes with “barely any” ships available for hire, according to ship-tracking data from Vortexa.

Bloomberg

Moving a cargo from Houston to Asia now adds about $26 per barrel—roughly $52 million per cargo—to the cost of supplying Asia, a region that imports the most crude worldwide. That increment equals about a quarter of the price of West Texas Intermediate futures. Freight rates on the main Persian Gulf-to-China lane have risen to over $1.2 million per day for VLCCs, while Suezmax earnings average north of $300,000 per day. The surge has lifted the market value of the world’s largest tanker equities to a record nearly $70 billion.

Bloomberg

Freight costs have roughly tripled, prompting a shift toward smaller vessels: Asian refiners are using 700,000-barrel Aframax tankers for U.S. cargoes, and Atlantic shipments are being booked on two 1-million-barrel Suezmaxes instead of a single supertanker. In Europe, Brent futures hover near $110 per barrel, while the physical Dated Brent price has climbed above $131 per barrel as buyers chase short-haul cargoes. Diesel futures in Europe are near $200 per barrel, reflecting the urgency to secure any available supply.

Bloomberg

Trafigura Group’s chief economist Saad Rahim warned that freight now represents a “much bigger issue” for logistics. Xavier Tang of Vortexa emphasized that freight, once a minor cost component, is now a major driver of oil market pricing, affecting end-buyer costs.

Bloomberg

• “It has never been this expensive to move oil around,” — Saad Rahim, chief economist at trading giant Trafigura Group

Bloomberg

• “Current freight levels can become self-limiting over time — they eventually close arbitrage routes and reduce demand for the most expensive long-haul barrels,” — Sumit Ritolia, senior manager of modeling at analytics firm Kpler

Bloomberg

• “Freight has never taken a big part of the delivered cost of oil, but it’s now playing a much bigger role in oil markets,” — Xavier Tang, senior market analyst at analytics firm Vortexa

Bloomberg