According to businesstimes.com.sg, a severe shortage of supertankers has driven daily earnings for very large crude carriers (VLCCs) hauling 2 million barrels from the Persian Gulf to China above US$1.2 million — a level previously deemed unimaginable by industry executives and brokers.
Soaring Costs Reshape Global Crude Flows
Moving a cargo from Houston to Asia now adds approximately US$26 a barrel — or US$52 million a cargo — to supply costs for Asia, the world’s largest crude-importing region. That premium equals roughly a quarter of the price of West Texas Intermediate futures. Before the US-Iran conflict, freight typically represented only a tiny fraction of delivered oil cost, but it now plays a much bigger role in oil markets, according to Xavier Tang, senior market analyst at analytics firm Vortexa.
Market-Wide Ripple Effects
The scarcity has pushed VLCC availability to historic lows: shipbrokers with decades of experience report virtually no vessels available for hire in certain locations within required timeframes. This tightness is cascading to smaller vessels — Suezmax tankers, each carrying 1 million barrels, are now earning on average more than US$300,000 a day, rates normally associated with war-zone operations. Asian refiners are also shifting to 700,000-barrel Aframax tankers for some U.S. purchases, deviating from standard supertanker use.
Price Divergence and Arbitrage Collapse
Freight inflation is visibly distorting physical pricing. While Brent futures topped out near US$110 a barrel this week, European Dated Brent — reflecting short-haul, immediately deliverable crude — surged above US$131. Meanwhile, diesel futures in Europe approached US$200 a barrel, underscoring persistent processor demand despite soaring logistics costs.
“It has never been this expensive to move oil around,” said Saad Rahim, chief economist at trading giant Trafigura Group, at the Bloomberg Commodity Investor Forum on Sep 17.
Self-Limiting Dynamics and Structural Shifts
Ship-tracking data from Vortexa shows U.S.-Asia crude flows have declined recently as freight costs roughly tripled. A Japanese refiner recently purchased Alaskan crude — a grade not typically well-suited for its processors — solely due to the shorter sailing distance. Similarly, Angolan oil sales to China are sluggish, and Saudi Arabia issued zero cargoes to European buyers under term contracts for October.
“Current freight levels can become self-limiting over time — they eventually close arbitrage routes and reduce demand for the most expensive long-haul barrels,” said Sumit Ritolia, senior manager of modeling at analytics firm Kpler.
Equity Rally and Market Uncertainty
The surge has minted fortunes for tanker owners: the value of the world’s largest oil tanker equities soared to a record of nearly US$70 billion this week. Yet oil traders face mounting risk — prohibitively high shipping costs threaten refinery margins and deter long-distance cargo purchases, even amid strong demand for diesel and gasoline. The key question remains how long elevated freight rates can be sustained, given that the drivers include both the US-Iran conflict and a pre-war wager by a South Korean tycoon that had already begun pushing rates upward.
Source: businesstimes.com.sg
Compiled from international media by the SCI.AI editorial team.
