Supertanker shortage sends oil shipping costs soaring, threatening long-haul trade

The cost of moving oil across the globe has surged, threatening long-haul trade as a shortage of supertankers drives up shipping expenses. Analysts say that freight now plays a larger role in the delivered cost of oil, making some long-distance crude trades uneconomical. The shortage of available supertankers, each as long as three football fields, has left some routes with few options.

Moving a cargo from Houston to Asia now adds about US$26 per barrel to the cost, equivalent to roughly a quarter of the price of West Texas Intermediate futures. This surge is making faraway barrels less attractive and encouraging refiners to seek supplies closer to home if possible. The rally is benefiting the few shipowners who dominate the tanker market, with their assets recently reaching a record high.

However, the higher costs risk making shipping prohibitively expensive for some refiners, potentially deterring them from buying long-distance cargoes even when demand for diesel and gasoline remains strong. Some long-haul routes that were crucial after wars disrupted energy flows are now looking unattractive due to the surge in shipping costs.

Ship-tracking data indicates a drop in US-Asia flows, while European crude prices have risen as buyers seek shorter sailing distances. European processors are also scrambling to replace Middle Eastern barrels with those from Angolan sources, while Asian refiners rely on smaller tankers for some purchases from the US. The surge in freight costs is largely driven by the US-Iran conflict and a significant wager by a South Korean tycoon that began before the war.

The key for oil traders will be how long elevated freight rates can be sustained, as diesel futures in Europe have recently risen to near US$200 per barrel.