Oil product shipping rates in Asia hit near two-week high after U.S. sanctions

SINGAPORE (Reuters) – Freight rates for shipping naphtha and other clean oil products from the Middle East to Japan have jumped 13% to their highest levels in nearly two weeks after Washington imposed sanctions on tanker subsidiaries of China’s COSCO, according to industry sources and Refinitiv data.

Rates for crude and oil products tankers have shot up as traders avoided ships linked to COSCO Shipping Tanker (Dalian) Co, Ltd, after the sanctions were announced.

The shipping index benchmark for Long-Range 1 (LR1) vessels which can carry 55,000 tonnes of clean products from the Middle East to Japan, also known as TC5, rose above 107 as of Friday on Worldscale (W), an industry tool used to calculate freight charges, trade and shipping sources said.

“The sanctions drove the Worldscale up overnight. COSCO Dalian ships serve mainly the AG (Arab Gulf) to Far East trade routes,” one ship broker said.

The higher shipping rates also follow a buying spree by Saudi Aramco seeking oil products including naphtha from India and Europe following attacks on its oil facilities which crippled production.

The cost of moving naphtha on a LR1 tanker on this route has increased by some $100,000 per voyage, two sources estimated, with Refinitiv Eikon data showing TC5 CFRT-ME-JAP2 at W95 on Wednesday.

Freight rates for LR1 tankers saw more impact than those for Long-Range 2 vessels (which carry up to 75,000 tonnes of product) as COSCO Shipping Tanker (Dalian) Co. Ltd owns more LR1 than LR2 vessels, the ship broker said.

Nonetheless, at least one LR2 was affected as European trader Trafigura dropped tanker Lian Song Hu, owned by COSCO Shipping Tanker (Dalian), for tanker Estia to load a naphtha cargo from Sikka, India, on Sept. 29, the broker said.

(Graphic: Trafigura drops COSCO-owned naphtha tanker, here)

Still, the Saudi oil attacks in mid-September had a larger impact on naphtha as it has sent spot premiums soaring to levels not seen since the first-half of 2018, trade sources said.

“Naphtha supplies should not be much affected despite the rise in freight rates. Even if WS is at 111, the current rates are still sharply lower compared to a few months before,” said a naphtha buyer.

The TC5 rate was at W117 in late August while at the start of the year it was at W160, Refinitiv data showed.