Multiple factors resonate as global oil tanker freight rates soar to nearly a six-year high

Cailian Press, February 25 (Editor: Shi Zhengcheng) The latest Tuesday data shows that the price to charter a Very Large Crude Carrier (VLCC) to transport Middle Eastern crude oil to China has surged past $170,000 per day, tripling since the beginning of the year. Industry insiders point out that, in addition to the well-known U.S.-Iran standoff, changes in global oil supply trends and large-scale ship orders by Korean shipping companies have all contributed to the price surge.

This latest price trend also indicates that the cost of oil transportation has risen to a new high since April 2020.

(Source: LESG, Reuters) Shipping analytics firm Kpler data also shows that in February, Middle Eastern crude oil exports reached 19 million barrels per day, the highest level since April 2020.

June Goh, senior analyst at Sparta Commodities, explained: “VLCC freight rates are driven by multiple positive fundamentals, including the shift from transporting Venezuelan crude via ‘shadow fleets’ to compliant, transparent regular shipping; OPEC+ production increases; and healthy refinery crude demand, especially in India, which is shifting its crude procurement from Russia to the Middle East.”

Some analysts also warn that if the Strait of Hormuz becomes embroiled in conflict, shipping costs could rise further.

Clarksons, a brokerage firm, stated in a report that the fluctuations in VLCC spot rates do not necessarily reflect a decrease in the actual volume of crude being transported. The report noted: “As long as market risk perception increases, freight rates can be quickly re-priced—including higher war risk premiums, shipowners demanding additional compensation for port calls in the region, and charterers pre-emptively booking or extending contracts to reduce voyage uncertainty.”

Meanwhile, sources also report that Korea’s Sinokor Merchant Marine is aggressively buying up VLCCs in the market, further tightening the overall supply of these vessels. Multiple sources estimate that Sinokor currently controls at least 78 VLCCs, a number expected to reach at least 88 in this quarter.

Industry estimates suggest Sinokor’s goal may be over 100 vessels, possibly reaching 120-130.

Shipping data analysis firm Signal Group noted in a report last week: “When the fleet reaches 88 vessels, Sinokor has become the largest commercial operator in the VLCC sector, controlling about 24% of the spot trading fleet and nearly 12% of the total global VLCC fleet. Such a high concentration of market share by a single entity is unprecedented in this market.”

Interestingly, the rapid surge in tanker charter rates has also caused well-known industry experts’ comments to “become outdated very quickly.”

On Tuesday evening, Javier Blas, a prominent energy author, lamented on social media that the annual contract to charter a VLCC has now broken through $90,000 per day, reaching a historic high. Some commenters pointed out that the new record is now $105,000 per day, set by DHT.

Data shows that DHT signed three one-year VLCC charter contracts in the past week. On February 18, the rate was $90,000 per day; the next day, it rose to $94,000; and by this Monday, it had increased to $105,000.

Blas commented that seeing such high daily rates in long-term contracts is truly, truly, extremely rare.