Shipping rates for Mideast oil are surging

Alaric Nightingale and Firat Kayakiran, Bloomberg

6:54 am CDT, Friday, June 21, 2019

FILE – In this Thursday, June 13, 2019 file photo, an oil tanker is on fire in the sea of Oman. A series of attacks on oil tankers near the Persian Gulf has ratcheted up tensions between the U.S. and Iran — and raised fears over the safety of one of Asia’s most vital energy trade routes, where about a fifth of the world’s oil passes through its narrowest at the Strait of Hormuz. The attacks have jolted the shipping industry, with many of operators in the region on high alert. (AP Photo/ISNA, File) less

FILE – In this Thursday, June 13, 2019 file photo, an oil tanker is on fire in the sea of Oman. A series of attacks on oil tankers near the Persian Gulf has ratcheted up tensions between the U.S. and Iran — … more

Photo: Associated Press

FILE – In this Thursday, June 13, 2019 file photo, an oil tanker is on fire in the sea of Oman. A series of attacks on oil tankers near the Persian Gulf has ratcheted up tensions between the U.S. and Iran — and raised fears over the safety of one of Asia’s most vital energy trade routes, where about a fifth of the world’s oil passes through its narrowest at the Strait of Hormuz. The attacks have jolted the shipping industry, with many of operators in the region on high alert. (AP Photo/ISNA, File) less

Photo: Associated Press

Oil tanker owners are raising the prices they charge to export Middle East crude as tensions surge in a region that accounts for about a third of all seaborne petroleum shipments.

Rates for transporting 2 million-barrel cargoes from Saudi Arabia to China jumped to almost $26,000 a day on Thursday, more than double where they were at the start of June, according to Baltic Exchange in London. Shipbrokers report a surplus of vessels in the Persian Gulf, indicating that owners are reluctant to accept charters at low rates given the current risks.

“Nothing much has changed in terms of supply and demand since the latest attacks, so it’s pretty much all a risk premium,” said Halvor Ellefsen, a shipbroker at Fearnleys London.

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A survey of shipbrokers involved in the Middle East trade shows they anticipate there being 22% more ships available for charter in the next four weeks than probable cargoes. That’s a smaller surplus than last week but still higher than normal for the time of year.

Trading Paused

Despite the glut, vessel owners including Frontline Ltd., one of the world’s biggest operators of supertankers, briefly paused charters in the immediate aftermath of the latest round of attacks in the region last week. The U.S. blamed Iran for those incidents, something the Persian Gulf country denied.

Insurance rates also soared after those incidents, with companies charging at least $180,000 in premiums to go to the Persian Gulf. They were about $30,000 early this year before tensions began to escalate.

Since then, frictions have continued to mount. Iran shot down an American drone on Thursday. The U.S. got to within hours of counter strikes until U.S. President Donald Trump abandoned the plan. Earlier this week, a rocket landed near a oil field workers’ camp in Iraq.

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Tanker rates are still not particularly high by historic standards. The $26,000 a day that owners are earning from very large crude carriers, or VLCCs, compares with as much as $177,000 in July 2008 around the time that oil prices were surging to a record. Oil companies are paying about $1.31 a barrel for shipments to Asia, according to data compiled by Bloomberg

“VLCC rates continue to rise out of the Middle East Gulf, where modern ships are receiving a premium,” said Pareto Securities AS shipping analysts Eirik Haavaldsen and Wilhelm Flinder said in a note. War premiums are “starting to show for real.”