Oil-tanker earnings surged above the $100,000-a-day marker on the benchmark route as a looming ship-fuel revolution combined with U.S. sanctions to supercharge rates.
The rates for ships hauling 2-million-barrel cargoes of Middle East oil to China climbed more than 15% to $113,047-a-day, according to data from the Baltic Exchange in London. That’s the highest in data going back to February 2017.
The U.S. move to impose Iran-related sanctions on Chinese companies including units of China COSCO Shipping Corp., one of the world’s biggest vessel owners, is among the factors that propelled rates higher, according to shipping analysts. Exxon Mobil Corp.’s shunning of vessels that have called at Venezuelan ports in the past 12 months also played a part.
Additional underlying drivers include seasonal market strength, hundreds of tankers getting fitted with “scrubbers” to meet International Maritime Organization sulfur-emissions rules that come into effect from January, and strengthening refining activity linked to that change.
“Presently the market is driven by psychology and sanctions, with few if any really knowing the duration of the latter,” said Espen Fjermestad, an analyst at shipbroker Fearnley Securities AS in Oslo. “If anything, we see upside given greater supply reductions through scrubber retrofits and increased refinery runs ahead of IMO.”
On Tuesday, tanker rates from the Middle East to China gained 11% to 133.13 Worldscale points, again the highest this year, the Baltic Exchange said. Worldscale is an industry standard that allows traders to easily calculate cash costs and returns from thousands of different tanker routes.
Exacerbating the sanctions-related reduction in ship supply, some vessels are installing scrubbers and that means “they will need to return to dry dock, effectively removing supply from the market,” according to BloombergNEF oil analyst Mohith Velamala. About 700 tankers are scheduled to have installed scrubbers by the end of 2019, he said.
Other major tanker routes also gained to year-to-date highs, including rates for the Middle East-to-Singapore and Middle East-to-U.S. Gulf journeys, as well as West Africa to China.
“For the first time in years, all major shipping segments are trading at historical strong levels,” Clarksons Platou Securities AS analysts including Frode Morkedal said in an emailed note earlier on Tuesday.