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By Weilun Soon
The cost of hiring an oil supertanker on a benchmark route spiked to the highest in more than five years, as buyers sought alternatives to sanctioned Russian crude amid increased supply from Middle East and US producers.
Benchmark rates for very-large crude carriers that can transport up to 2 million barrels from the Middle East to China rose to nearly $137,000 a day at the end of last week, marking a 576% increase this year. It was the highest since late April 2020, and surpassed the last multiyear peak reached just two weeks ago. A broader index covering VLCC rates on several routes also hit $116,400 a day, a fresh five-year high.
Source: Baltic Exchange
Note: The VLCC TCE index is a broader weighted average of key routes.
The run-up in supertanker bookings came as US penalties on the oil exports of Russia’s Rosneft PJSC and Lukoil PJSC took effect on Friday, which has forced buyers — especially those in India and China — to turn to other suppliers.
It has also coincided with increased output from the US and OPEC+ countries, in particular Middle Eastern producers ready to supply buyers with more crude, according to a note by Jefferies LLC analyst, Omar Nokta.
The shift in demand is already evident as more bookings were made last week for late November and December, with about a dozen vessels being asked to take crude from the Middle East. That in turn boosted supertanker earnings.
Rising rates have also benefited the wider tanker fleet, with smaller-sized vessels seeing higher earnings. Suezmaxes, which carry about half the load of VLCCs, have moved into the Middle East to pick up cargoes on routes normally taken by VLCCs, Vortexa’s lead freight analyst Ioannis Papadimitriou wrote in a note last week. Aframaxes that can take about 700,000 barrels also benefited from the VLCC-led uplift, with rates touching $51,000 a day last week for a trip from the Middle East to Asia, according to Sentosa Shipbrokers in Singapore.
Earlier this month, a record number of tankers that typically transport products like jet fuel and diesel switched to carrying crude — a process known as “dirtying up” — to chase better profits.
(Updates to include Aframax rates in sixth paragraph.)
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