Supertanker freight rates have surged in recent days, as the US government’s expanded sanctions on Russian oil trade send traders scrambling to book vessels for shipments from other countries to China and India.
This surge in demand is putting upward pressure on shipping costs, creating turbulence in the global oil market.
Chinese and Indian refiners are actively seeking alternative fuel sources in response to stringent new US sanctions imposed on Russian producers and tankers, which are intended to restrict the world’s second-largest oil exporter’s revenue.
Many of the newly targeted vessels, which make up part of a “shadow fleet,” had been used to transport oil to India and China.
These countries previously took advantage of cheap Russian oil supplies banned in Europe following Moscow’s invasion of Ukraine.
Some of these tankers had also been used to transport oil from Iran, which is also under sanctions.
VLCC rates surge after major charters
Freight rates for Very Large Crude Carriers (VLCCs), which can carry 2 million barrels of crude across major trade routes, jumped sharply after Unipec, the trading arm of China’s largest refiner, Sinopec, chartered multiple supertankers on Friday, according to industry sources.
One shipbroker reported that the rate for the Middle East to China route, known as TD3C, has surged by 39% since Friday to $37,800 per day, the highest level since October.
Shipping rates for Russian oil shipments to China have also seen a significant increase following the implementation of new sanctions.
Aframax rates double amid limited tonnages
The freight rates for Aframax-sized tankers, used to ship ESPO blend crude from Russia’s Pacific port of Kozmino to North China, more than doubled on Monday, reaching $3.5 million, as ship owners have begun requesting substantial premiums, given the limited number of tankers available for that route.
This information comes from S&P Global Commodity Insights data. Further contributing to the market tightness, sanctioned tankers are stranded outside China’s eastern Shandong province, unable to discharge their cargoes due to a ban imposed by Shandong Port Group before Washington’s announcement on Friday.
Analysts anticipate that tanker availability could tighten further as traders seek unsanctioned vessels to transport Russian and Iranian crude.
“We expect new ships will be pulled into the shadow fleet over the coming months, many of which will be new to this trade, tightening supply in the non-sanctioned freight market,” Kpler analysts said in a note, highlighting the complexity of the evolving shipping landscape.
Rate increases across major routes
The rate for VLCCs from the Middle East to Singapore has increased the most, rising by 11.15 on the worldscale (WS) to WS61.35, according to another shipbroker.
Worldscale is an industry standard tool used to calculate freight charges.
Additionally, on the Middle East to China route, freight jumped to WS59.70, an increase of WS10.40, while rates for VLCCs carrying West African oil to China rose to WS61.44, an increase of WS9.55.
Even the cost of shipping crude from the US Gulf to China has risen to $6.82 million, up $360,000 since last week.
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