Oil Shipping Costs Hit a 6-Year High

According to Reuters, industry sources report that oil transportation costs have surged to their highest level in six years. This increase is driven by a wave of crude exports from the Middle East and traders rushing to secure tankers ahead of potential military conflict in the region, sharply boosting demand for shipping.

Data from the London Stock Exchange Group shows that the cost of chartering a Very Large Crude Carrier (VLCC) to transport up to 2 million barrels of oil from the Middle East to China has more than tripled since the beginning of the year, reaching over $170,000 per day on Tuesday—the highest since April 2020.

Data from Kpler indicates that Middle East crude exports exceeded 19 million barrels per day in February, the highest level since April 2020.

This rise has been mainly driven by Saudi Arabia, the UAE, and Iran, alongside increased demand from India following a reduction in its imports of Russian oil.

Jun Gu, senior analyst at Sparta Commodities, stated that VLCC freight rates are supported by strong fundamentals, including higher OPEC+ production, increased refinery demand—especially in India—and a shift in oil sourcing from Russia to the Middle East.

He added that smaller tanker markets such as Suezmax and Aframax are also expected to see rising freight costs soon.

Clarksons noted that shipping rates could increase rapidly due to the risk of conflict in the Middle East, which raises insurance costs, compensation demands from shipowners, and tanker bookings.

Meanwhile, the global tanker supply has tightened as hundreds of aging vessels have moved into the so-called “shadow fleet” used for sanctioned oil transport, further pushing up freight costs./Tasnim