Tanker rates hit 25 times January levels as Hormuz disruption squeezes oil majors

Freight is now a direct inflation channel for oil buyers. It is not a line item refiners can absorb. The bill is landing on oil majors and Asian refiners. VLCC earnings on the Middle East-China route went from about $56,000 a day on 9 January to $1.37 million on 16 October, according to UNCTAD. That is a 25-fold rise.

The cost shock in numbers

The report, Strait of Hormuz Disruptions: Soaring fuel prices and the burden of inflation, puts the Clean Tanker Index at 280 on 19 October. That compares with a baseline of 100 on 27 February. The index covers refined products. Crude across four regional benchmarks averaged about $108 a barrel that day. It was roughly $66 at the start of the agency's chart period. Bunker fuel prices were 72% higher by 20 October than their average in the six months before the conflict. Diesel rose 81%, jet fuel 80% and gasoline 64%. The supply side moved too. Residual fuel oil exports from Bahrain, Kuwait and Saudi Arabia fell 66% to 2.5 million metric tons between March and June. That was from 7.2 million a year earlier.

Oil majors count the cost

Shell disclosed a $5.4bn non-cash increase in its shipping lease liabilities in the third quarter, Splash247 reported. The liabilities attach to index-linked charters that reset at spot rates. They have grown by nearly $7.7bn since the start of the year. Shell said the revaluations are not immediate cash outlays. Chief financial officer Sinead Gorman said Middle East-China freight rates were around ten times year-earlier levels.

"You see that starting to come into margins," she told analysts.

At TotalEnergies, chief executive Patrick Pouyanné said shipping costs had risen from about $2 to $3 a barrel to approximately $25 a barrel. He attributed about $6 a barrel of pressure to freight. That pressure hit the company's liquids price realisations. Fixed-rate medium- and long-term agreements cover roughly 40% of the equity crude it lifts.

Eni reported third-quarter refining adjusted operating profit of €730m. It said higher freight costs partly offset the gains. Equinor's crude, products and liquids unit posted an adjusted operating loss of $96m. That compares with a $355m profit in the previous three months. Equinor linked the loss to derivative losses in a tight shipping market.

Chinese refiners reroute purchases

According to Bloomberg, which Business Insider Africa cited, some refiners bought West African and Brazilian crude for December delivery. They paid premiums of up to $20 a barrel above ICE Brent. Shipping a cargo from the US Gulf Coast to China cost as much as $80m earlier in October. That was roughly ten times historical average tanker rates. It still cost about $60m last week.

Vortexa data that Bloomberg cited put freight above $42 a barrel on the US Gulf Coast-South Korea route in early October. It put freight at $39 from Brazil to China and $32 from West Africa to China. Those costs have since fallen by about $10 a barrel. That was enough to encourage purchases of Equatorial Guinea's Ceiba, Angola's Saturno and Brazil's Mero. Competition with India for Russian ESPO crude pushed those prices up. US restrictions on Iranian oil forced independent Chinese refiners to look elsewhere.

Tight tonnage and no clear peak

Supply is not loosening quickly. Around 50 supertankers are serving as floating storage in the Persian Gulf, according to market estimates that Azernews cited. Saudi Arabia cut prices for Asian customers by $5 to $7 a barrel. But the reductions did not offset the higher transport bill.

Arrow researcher Burak Cetinok calculated that VLCC earnings this month were 14 times their ten-year average. The weekly multiple was approaching 20. He saw no immediate sell signal. DHT Holdings chief executive Svein Moxnes Harfjeld pointed to an ageing fleet. By the end of 2029, almost half the VLCC fleet will be more than 15 years old. A quarter will be more than 20.