The war in the Middle East has accelerated an already brisk rally in crude shipping rates, pushing them to record highs after resilient global demand for oil was already stretching the tanker fleet.
Vessel attacks and revoked ship insurance have brought ship traffic in the strait of Hormuz, through which about 20pc of the world's oil travels, to a standstill, with as many as 700 ships unable to leave the region.
The Argus Crude Tanker Index (ACTI), a composite index of chartering costs on 15 of the world's most important crude trade routes, climbed to $10.39/bl Tuesday, its highest level since the index's data began in 2010.
A reinstatement of shipping insurance, something the US said it plans to do, may loosen up vessel traffic in the Mideast Gulf, but for now energy traders are already seeking alternate crude supplies. The Argus rate for very large crude carriers (VLCCs) on the US Gulf coast-China route, including load-port fees, has climbed to $29.55mn lumpsum, equivalent to $14.19/bl and a record high, after a Thailand-based company booked a VLCC for April loading in the US Gulf coast with an option for China discharge at an equivalent level. The booking included demurrage, or the costs of delays, at an astonishing $310,000/d. The average in the last year was around $86,000/d.
Tanker availability for most of the world's routes was already scant before the war started, and will likely persist for weeks with the hundreds of ships stuck by the fighting. Long-haul voyages from the oil producers in the Americas to Asian refiners continues to occupy the diminishing number of tankers that remain unsanctioned.
Smaller tankers offer better economics
The war in the Middle East has pushed up all crude freight rates across the globe, but not to the same extent across the three main crude tanker segments — 2mn bl VLCCs, 1mn bl Suezmaxes, and 700,000 bl Aframaxes — which carry about 99pc of the world's oil.
Oil traders typically prefer VLCCs because of the economies of scale the larger vessel offers. But the $/bl discount that traders usually get with a VLCC over the smaller Aframax has flipped to a premium because of the VLCC rate surge. So, traders are now paying more on a $/bl basis for a larger ship that typically has longer lead-times and less loading or discharge flexibility than the smaller Aframax.
The VLCC ACTI, a composite measure of global VLCC rates, is at a $6.72/bl premium to the Aframax ACTI. For the last 12 months, this spread averaged a $1.10/bl discount.
In the coming weeks traders are more likely to look to smaller tankers for their cargoes and crude buyers may try to source their crude from closer suppliers to mitigate these sky-high freight costs.
