Tanker shortage disrupts long-haul crude

A shortage of supertankers is causing long-haul crude trades to become uneconomical, threatening global fuel market stability. The shortage is driven by a scarcity of these three-football-field-long ships, making faraway barrels less attractive and prompting refiners to seek supplies closer to home. Shipping costs have surged by $26 per barrel on routes from Houston to Asia, equaling nearly a quarter of West Texas Intermediate futures prices.

Shipowners, a small group dominating the tanker market, are reaping significant profits from the surge. However, higher shipping costs may make some refiners hesitant to purchase long-distance cargoes, even when demand for diesel and gasoline is high. Long-haul routes, particularly those connecting the Persian Gulf to China, are becoming less attractive due to the steep freight costs, which have tripled.

European crude prices have shifted towards shorter-haul cargoes, with Brent futures nearing $110 a barrel and European Dated Brent physical crude prices surpassing $131. Angolan oil sales, typically destined for Chinese buyers, are also lagging. The scarcity of supertankers is also impacting smaller vessels, with Asian refiners opting for 700,000-barrel Aframax tankers and two 1 million-barrel Suezmax vessels instead of traditional supertankers.

The surge in shipping costs is attributed to the US-Iran conflict and a South Korean tycoon's investments, which have already elevated shipping rates before the war. Analysts are unsure how long elevated freight rates can persist, as diesel futures in Europe are near $200 a barrel, indicating that processors still rely on every available cargo.