Supertanker sanctions send global oil freight rates soaring

Rates for chartering Very Large Crude Carriers surged overnight after the US announcement. (Shutterstock)
Updated 28 September 2019

Supertanker sanctions send global oil freight rates soaring

  • US move to exert maximum pressure on Iran to drop its nuclear program unsettles crude trade

SINGAPORE: Key oil freight rates from the Middle East to Asia rocketed as much as 28 percent on Friday in a global oil shipping market spooked by US sanctions on units of Chinese giant COSCO for alleged involvement in ferrying crude out of Iran.

In what the State Department called “one of the largest sanctions actions the US has taken” since curbs were re-imposed on Iran in November last year, two units of COSCO were named alongside other companies in claims of involvement in sanctions-busting shipments of Iranian oil. 

The surprise move, affecting one of the world’s largest energy shippers, operating more than 50 supertankers, comes as President Donald Trump seeks to exert maximum pressure on Iran to drop nuclear programs.

As some Asian oil buyers rushed to the shipping market to secure vessels, rates for chartering supertankers, or Very Large
Crude Carriers (VLCCs), to load crude oil from the Middle East to north Asia in October surged nearly 19 percent overnight to about 75-76 points on Worldscale, an industry tool used to calculate freight charges, shipping and industry sources said.

That means an increase of about $600,000 for each ship, a Singapore-based crude oil trader said.

The rates for loading Middle East crude to west coast India in the second week of October jumped 28 percent to 80-92.5 points after Reliance Industries Ltd. booked two supertankers overnight, industry sources said.

But there was also uncertainty over how widely the sanctions on the COSCO units — COSCO Shipping Tanker (Dalian) Co, Ltd. and its subsidiary COSCO Shipping Tanker (Dalian) Seaman & Ship Management — will be implemented. Industry sources said some oil buyers were holding off hiring COSCO tankers while they check with legal teams to better understand the impact of the sanctions.

“The market is fearful of sanctions so refiners are taking some preventive measures. We’ll have to see how widely implemented the sanctions will be,” said KY Lin, spokesman for Taiwanese refiner Formosa Petrochemical, a major crude oil buyer in Asia.

Friday’s jolt left shipping rates springing back to levels not seen since mid-September drone and missile strikes on key Saudi Arabian oil production facilities roiled global markets. The COSCO vessels are equal to about 7.5 percent of the world’s fleet of supertankers, according to Refinitiv data.

“Charterers are in trouble,” a North Asian shipbroker said, declining to be named citing company policy. “It was terrible news for every one of us with the Saudi drone attack, and now the market has to deal with US sanctions on COSCO.”

“Good news for owners, good time for them to earn money,” the broker said.

While diplomatic tensions between the US and Iran remain high, a British-flagged tanker that had been detained by Iran in the Strait of Hormuz on Friday left Bandar Abbas port heading for international waters.

On Thursday, Unipec, the trading arm of Asia’s largest refiner Sinopec and India’s largest refiner Indian Oil Corp, canceled bookings of some COSCO ships and scrambled to find alternative ships to move their crude on. 

“Rates have definitely been pushed higher by these sanctions,” said an executive at a top shipbroker in Singapore, adding that ships carrying Middle East and US crude to Asia were subject to the biggest impact. The broker declined to be identified, citing company policy.

Crude shipments from the US to Asia have also been affected. Industry sources said provisional bookings for VLCCs Cosmerry Lake and Yuan Qiu Hu to load US oil in the second half of October had been scrapped. Cosmerry Lake is owned by Cosmerry Lake Maritime Inc. and managed by Cosco Shipping Tanker (Dalian), while Yuan Qiu Hu is owned and managed by Cosco Shipping Tanker (Dalian).

COSCO officials were tight-lipped on Friday.

“(The) company is assessing the situation and impact internally
as soon as possible, but so far we don’t have anything to update you,” said Zhang Zheng, an investor relations official with COSCO Shipping Energy Transportation, parent of COSCO Shipping Tanker (Dalian).


Pound firms awaiting Brexit extension date

Updated 5 min 23 sec ago

Pound firms awaiting Brexit extension date

  • “Traders are terrified at the prospect of a no-deal Brexit”
  • European Council President Donald Tusk has recommended that the EU’s 27 other member states grant an extension, likely until the end of January

LONDON: The pound firmed against the dollar and euro on Wednesday as the European Union prepared to grant a further delay to Brexit, averting the prospect of Britain departing the bloc next week without a deal.
The prospect of another delay had initially hit sterling, which briefly dropped as low as $1.2841 on Wednesday in Asian trade before bouncing back to over $1.2890, up from late in New York on Tuesday.
The pound is experiencing volatility on every Brexit twist and turn. Earlier this week the unit reached five-month highs above $1.30 on increasing hopes that a painful ‘no-deal’ Brexit divorce would be averted.
“Like Brexit, the pound is bouncing around,” said CMC Markets UK analyst David Madden.
“Traders are terrified at the prospect of a no-deal Brexit, but that currently seems very unlikely, which is assisting the pound,” he added.
In stock market trading, London’s benchmark FTSE 100 index climbed 0.7 percent, while eurozone equities were mixed.
The EU is set to grant another Brexit extension after British MPs on Tuesday rejected Prime Minister Boris Johnson’s bid to force his divorce deal through parliament this week.
European Council President Donald Tusk has recommended that the EU’s 27 other member states grant an extension, likely until the end of January.
In the meantime, the UK could hold a general election aimed at ending the Brexit deadlock, according to analysts.
Elsewhere on Wednesday, Wall Street moved higher, with the Dow up 0.3 percent in midday trading.
Shanghai’s main stocks index closed down 0.4 percent and Hong Kong lost 0.8 percent, with traders keeping tabs on reactions to a Financial Times report saying China is drawing up a plan to remove Hong Kong’s beleaguered chief executive after nearly five months of pro-democracy unrest.
In commodities trading, oil prices bounced higher after data indicated US oil and gasoline stockpiles decreased, easing worries about weak crude demand growth as the world economy slows.
On the corporate front, shares in French carmaker PSA jumped 3.2 percent after the company said healthy demand for upmarket models helped it resist a slowdown in the global automotive market.
The maker of Peugeot, Citroen, DS, Opel and Vauxhall vehicles announced a one-percent gain in third-quarter sales to 15.6 billion euros ($17.4 billion).
Meanwhile shares in Boeing climbed 3.0 percent despite reporting that third-quarter profits fell by half to $1.2 billion as it said it expects to get regulatory approval this year to return the grounded 737 MAX to service.
“Dow component Boeing’s profit miss is being shrugged off as the company stuck to its plan to return the 737 MAX to service” by the end of the fourth quarter, said analysts at Charles Schwab brokerage.