The cost of hiring a Very Large Crude Carrier from the Persian Gulf to Asia, the benchmark route, has risen twelvefold in a few months to a record $1.1 million a day.
Other numbers from the same market tell the same story from different angles. Earnings for supertankers on the Middle East to China route reached a record of nearly $800,000 a day earlier in September. On the US Gulf to Asia run, charterers were offered VLCCs at a record lump sum of $29.5 million, close to $15 a barrel before war risk premiums or delay fees. The Baltic Exchange began publishing an index for the Gulf of Oman to east Asia voyage and daily earnings on it spiked 85 percent since inception to almost $386,000. The cost of shipping oil from West Africa to China jumped from around $6.50 a barrel in July to over $20 by mid-September.
Alex Grant, Equinor’s global head of crude, products and liquids trading, described the cause plainly: quite a few bottlenecks all at the same time, a market that is quite stressed, and it shows up in shipping rates.
Here is the thing that makes this different from an ordinary price spike.
The oil did not become scarcer in a way freight rates can fix. Around ten million barrels a day are still flowing, according to Vitol’s chief executive. What changed is where they have to go and how far. Vessels avoid dangerous waters, take longer routes, and spend more days at sea per cargo delivered. The industry measures this as tonne-miles, and when tonne-miles rise while the fleet stays the same size, effective capacity falls without a single ship being lost.
That is the mechanism, and it is the one every operator gets wrong when they think about logistics capacity.
You do not run out of vans because you lost vans. You run out because each delivery started taking forty minutes instead of twenty-five, and suddenly four vans do the work of two and a half. Nobody sold a vehicle. The road changed. The correct response is not to hire more drivers, which takes months, but to change the route structure, and almost nobody does that because the fleet still looks adequate on paper.
The wider consequence is that this stops being an energy story and becomes an everything story. Barclays’ analysts note that cutting Gulf and Russian refinery supply has made the United States the crucial supplier of distilled products, which lengthens routes again. Refinery closures in the Atlantic Basin will mechanically increase product tonne-miles by shifting Europe and the US West Coast toward imports. That is structural lengthening meeting a fleet that cannot grow for years.
There is a dispute worth noting as a sign of the strain: tanker company Hunter Group says it is owed $55 million by a counterparty disputing its contractual obligations after the benchmark rate surged.
The barrels are moving. They are just going the long way, and somebody pays for every extra mile.
Source: The Japan Times, “The next inflation shock: $1 million-a-day oil tankers”
