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).


S&P 500 inches closer to record high

Updated 12 August 2020

S&P 500 inches closer to record high

  • US stock market index returns to levels last seen before the onset of coronavirus crisis

NEW YORK: The S&P 500 on Tuesday closed in on its February record high, returning to levels last seen before the onset of the coronavirus crisis that caused one of Wall Street’s most dramatic crashes in history.

The benchmark index was about half a percent below its peak hit on Feb. 19, when investors started dumping shares in anticipation of what proved to be the biggest slump in the US economy since the Great Depression.

Ultra-low interest rates, trillions of dollars in stimulus and, more recently, a better-than-feared second quarter earnings season have allowed all three of Wall Street’s main indexes to recover.

The tech-heavy Nasdaq has led the charge, boosted by “stay-at-home winners” Amazon.com Inc., Netflix Inc. and Apple Inc. The index was down about 0.4 percent.

The blue chip Dow surged 1.2 percent, coming within 5 percent of its February peak.

“You’ve got to admit that this is a market that wants to go up, despite tensions between US-China, despite news of the coronavirus not being particularly encouraging,” said Andrea Cicione, a strategist at TS Lombard.

“We’re facing an emergency from the health, economy and employment point of view — the outlook is a lot less rosy. There’s a disconnect between valuation and the actual outlook even though lower rates to some degree justify high valuation.”

Aiding sentiment, President Vladimir Putin claimed Russia had become the first country in the world to grant regulatory approval to a COVID-19 vaccine. But the approval’s speed has concerned some experts as the vaccine still must complete final trials.

Investors are now hoping Republicans and Democrats will resolve their differences and agree on another relief program to support about 30 million unemployed Americans, as the battle with the virus outbreak was far from over with US cases surpassing 5 million last week.

Also in focus are Sino-US tensions ahead of high-stakes trade talks in the coming weekend.

“Certainly the rhetoric from Washington has been negative with regards to China ... there’s plenty of things to worry about, but markets are really focused more on the very easy fiscal and monetary policies at this point,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

Financials, energy and industrial sectors, that have lagged the benchmark index this year, provided the biggest boost to the S&P 500 on Tuesday.

The S&P 500 was set to rise for the eighth straight session, its longest streak of gains since April 2019.

The S&P 500 was up 15.39 points, or 0.46 percent, at 3,375.86, about 18 points shy of its high of 3,393.52. The Dow Jones Industrial Average was up 341.41 points, or 1.23 percent, at 28,132.85, and the Nasdaq Composite was down 48.37 points, or 0.44 percent, at 10,919.99.

Royal Caribbean Group jumped 4.6 percent after it hinted at new safety measures aimed at getting sailing going again after months of cancellations. Peers Norwegian Cruise Line Holdings Ltd. and Carnival Corp. also rose.

US mall owner Simon Property Group Inc. gained 4.1 percent despite posting a disappointing second quarter profit, as its CEO expressed some hope over a recovery in retail as lockdown measures in some regions eased.

Advancing issues outnumbered decliners 3.44-to-1 on the NYSE and 1.44-to-1 on the Nasdaq.

The S&P index recorded 35 new 52-week highs and no new low, while the Nasdaq recorded 50 new highs and four new lows.