In recent days, the military strikes launched by the US and Israel against Iran have reshaped the landscape of Middle East crude oil trade. Combined with a severe shortage of vessel supply, freight rates for very large crude carriers (VLCCs) have now soared to their highest level in 60 years.
According to a report on the 11th from the Netherlands, a latest report by ING Group notes that, taking as an example a tanker that set out from Saudi Arabia for the Netherlands in September, the freight cost translates to a crude oil transportation cost of as much as US$35 per barrel—more than one-third of the crude oil price itself. By comparison, the average transportation cost on the same route was only US$2 per barrel last year. And as of October, tanker freight rates remain elevated.
According to a report on the 9th from the United States, shipbrokers point out that even after adjusting for inflation, current freight rates are at their highest level since the introduction of supertankers in the 1960s.
It is understood that the root cause of this spike in tanker freight is a structural shortage of shipping capacity triggered by the Middle East situation. Affected by the conflict, the risk of transiting the Strait of Hormuz has risen sharply, and a large number of shipowners have chosen to take alternative routes, substantially compressing global effective capacity.
Although Middle East crude oil exports have gradually resumed since then, trade procedures are now far more complicated than before the war. Middle East oil-producing countries are increasingly relying on "ship-to-ship" transfers at sea, with each transfer typically adding about a week of sailing time, further lengthening the turnover cycle of the global fleet. Repeated fluctuations in navigation conditions in the Strait of Hormuz caused by the regional situation have exacerbated the predicament.
At present, the surge in freight rates is being transmitted through the entire energy industry chain. Spanish refiner Repsol reported a refining profit of US$36 per barrel in the third quarter of this year, but market participants estimate that it narrowed to around US$15 in October, partly due to soaring tanker costs.
Market participants warn that tanker freight rates keep climbing, but beyond a certain tipping point, refineries are likely to choose to cut production. The core question for the market has shifted from "how much higher can freight rates go" to how much pressure the global crude oil trading system can withstand before persistently rising freight erodes refining profits.
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