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).


American farmers worry as crop prices dip amid corona outbreak

Updated 26 May 2020

American farmers worry as crop prices dip amid corona outbreak

  • Farmers growing corn and soy — the biggest crops in the world’s largest economy — were hoping for a turnaround this year

MOUNT AIRY: Dave Burrier steered his tractor through a field, following a GPS map as he tried to plant as much corn as possible amid the yellow and green rye covering the ground.

Striving to get a massive yield out of his crops in rural Maryland is how Burrier hopes to make it through yet another uncertain year, beset by market disruptions caused by the COVID-19 pandemic and renewed trade tensions between the US and China.

“We’ve had so much price erosion that we’re basically at below the cost of production. We’ve got to figure out how to manage and turn a profit,” Burrier said. “That’s harder than planting this corn.”

American farmers growing corn and soy — the biggest crops in the world’s largest economy — were hoping for a turnaround this year after Washington and Beijing reached a truce in their months-long trade war, which included a pledge to buy more US agricultural goods.

But the coronavirus hit before the benefits of that deal could be felt, disrupting transportation and operations at slaughterhouses, sapping demand, while the global oil price crash closed the ethanol and biofuel plants that could have picked up the slack.

“It’s kind of glum,” said Dave’s wife Linda Burrier, a soybean farmer who serves on the United Soybean Board, the crop’s governing body in the US. Yet she remains guardedly optimistic.

“Farmers are one of the most faithful people there are,” she said. “You put a seed in the ground, you expect to get a crop out of it.”

Facing a supply glut, the US Department of Agriculture projects the average farm price for corn will to drop to its lowest level in 14 years in the 2020-2021 growing season. Soybean prices also are expected to fall. And a study from the University of Illinois and Ohio State University earlier this month predicted that even with payments from government safety net programs, corn and soybean farmers are facing total revenue losses of $8.5 billion to $10.2 billion amid the pandemic.

President Donald Trump’s administration spent $28 billion in 2018 and 2019 to help farmers hurt by the trade war, and pledged another $16 billion this year to offset the market disruptions.

Dave Burrier said the current conditions are a grim echo of the 1980s — a decade he would prefer to forget — when a combination of low commodity prices, heavy debt burdens and a grain embargo against the Soviet Union ruined American farmers. “It gives me a chill to talk about it,” he said.

Plenty has changed in the more than four decades Burrier, 67, has been farming.

Computer monitors in his tractor display detailed metrics to track his planting, replacing the pen and notebook his father relied on.

The Soviet Union is gone, but US farmers once again are partly at the whim of a foreign power.

China retaliated for Washington’s unilateral trade actions with crippling tariffs on US soy that drove a steep drop in total US agricultural exports to $9.2 billion in 2018, less than half the 2017 amount, according to government data. Exports recovered to nearly $14 billion last year.

In the “phase one” deal reached in January, Beijing agreed buy up to $50 billion in US farm products. But with Trump accusing China of covering up the origins of the coronavirus, fears are rising that the deal will fall victim to the acrimony.

“Agriculture in America is very vulnerable right now, but if we have a good growing season we should be able to get through this year,” said Arlan Suderman, chief commodities economist at INTL FCStone.

Danielle Bauer, executive director of both the Delaware and Maryland soybean boards, said farmers in her area have stepped up exports to Taiwan and are expecting increased demand for high oleic soybean oil, a variety grown exclusively in the US.

“There is a lot of uncertainty. The farmers are bracing for a really hard year all around,” she said.

The Burriers also plant wheat and make good money selling hay to a nearby racetrack, and Dave’s corn yield last year was double the county average.

But 60-year-old Linda admits the setbacks of recent years plus the pandemic mean the couple probably will have to delay retirement.

“We’re going to have to wait, I don’t know, another 5 or 10 years, if we can, physically,” she said. “My husband’s worked really hard. I don’t know how much longer he’s going to want to keep at it.”