BIMCO’s chief shipping analyst Peter Sand: in the aftermath of the attacks on two tankers in the Straits of Hormuz, VLCC spot freight rates between the Middle East Gulf and China have risen 101% between 13 June and 20 June
Spot freight rates for a VLCC carrying 2M barrels of oil reached US$25,994 per day on 20 June, their highest level since March and significantly above the May average of US$9,979 per day.
Despite this increase, freight rates on this route only narrowly exceed the daily breakeven costs of a VLCC, on average US$25,000 per day.
Considering only seaborne transportation of crude oil, the 19.7M barrels per day transiting the Strait of Hormuz represents 49% of the 40.5M barrels transported in total (source: Clarksons Research), noted BIMCO.
Although spot freight rates for crude oil tankers out of the Middle East Gulf have risen sharply, those for LR2 tankers carrying clean oil products like naphtha have remained much more stable.
Spot freight rates for an LR2 carrying naphtha condensate from the Middle East Gulf to Japan rose by only 4% between 13 and 20 June 2019.
Front Altair was sailing on this trade when it was attacked on 13 June.
“The unchanged rates for oil product tankers compared with the jump in freight rates for crude oil tankers illustrate the differences between the two markets as well as the effects of sentiment on crude oil freight rates,” said Mr Sand.
Immediately after the attacks, safety concerns led several tanker owners to question whether they would continue trading in the Middle East Gulf. There has however been no major exodus from the market.
“The vast majority of tanker owners are more or less going about with business as usual, although they have ratcheted up their safety and security precautions when trading their ships in the [Middle East] Gulf,” said Mr Sand.
These additional measures include speeding up while sailing through the Strait of Hormuz, as well as avoiding sailing through it at night at which point watchkeeping becomes more difficult.
The added costs of safety measures as well as higher insurance premiums, which rose sharply following the news of the attacks, mean that shipowners will not only face higher risks but also higher costs when trading in the region.
“To avoid major disruption, it is vital for global energy trade that the Strait of Hormuz remains accessible and safe for ships to sail through. As long as tensions aren’t escalated, the attacks are unlikely to have a more profound effect. However, the risks that the conflict will escalate remains very present and a great worry to everyone involved with oil trading in the region,” said Mr Sand.
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