SINGAPORE/LONDON- 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 United States 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 US President Donald Trump seeks to exert maximum pressure on Iran to drop nuclear programs.
As some Asian oil buyers rushed 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 per ship, a Singapore-based crude oil trader said.
“The current strength in rates has been triggered by geopolitics,” shipbroker E.A. Gibson said on Friday. “This week’s US sanctions on two COSCO subsidiaries added more fuel to the fire.”
Supertanker rates on the benchmark Middle East Gulf to China route soared to $51,480 a day and were at their highest in nearly 11 months, Baltic Exchange data showed later on Friday.
Shipping sources added that tanker derivatives rates for the fourth quarter of 2019 – which give an indication of forward rate expectations – also rose on Friday to 88 Worldscale points, from 85 on Thursday.
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 Co, Ltd – would be implemented.
COSCO Shipping Tanker (Dalian) owns and manages at least 36 tankers for crude and refined products, including 18 VLCCs, according to shipping sources and Refinitiv data.
At least three ships linked to COSCO Shipping Tanker (Dalian) scheduled to load oil from the United States and Brazil were cancelled, oil and shipping sources said.
“There’s confusion in the market for those who has fixed the COSCO’s vessels. Everyone wants to avoid exposure to US sanctions,” a Singapore-based trader said.
Provisional bookings for VLCCs Cosmerry Lake and Yuan Qiu Hu to load US oil in the second half of October were scrapped.
Cosmerry Lake, owned by Cosmerry Lake Maritime Inc and managed by COSCO Shipping Tanker (Dalian), is floating off the US Gulf. Yuan Qiu Hu, owned and managed by COSCO Shipping Tanker (Dalian), is on its way to the US Gulf.
A third COSCO-linked supertanker was chartered to load in Brazil, but it has been replaced by another vessel, a source with knowledge of the matter said.
Contacted by Reuters, an official at COSCO said the impact of the sanctions was being examined.
“(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)
Trading in shares of COSCO Shipping Energy Transportation was halted on Thursday after the news on the sanctions.
Industry sources said some buyers were holding off 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 comes after turmoil in mid-September with drone and missile strikes on key Saudi Arabian oil production facilities, which roiled global markets and pushed tanker rates higher. 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.” – Reuters