Oil Tanker Rates Plummet As Output Cuts Curb Vessel Demand
One year after the Ukraine war and subsequent shipping embargo chaos sent tanker rates soaring, a gradual return to normalcy and oil supply cuts by some of the world’s top producers are curbing the need for tankers, leading to a plunge in the cost of shipping crude around the world.
As a result, Bloomberg reports, shipping rates for vessels from mid-sized Aframaxes to supertankers have eased in recent months. The move coincides with Saudi Arabia’s production cuts and Russia’s export curbs, both of which are set to run at least into September and perhaps longer
“OPEC+ production cuts are depressing demand across the crude tanker sector,” said EA Gibson's head of research Richard Matthews, referring to the producer alliance led by Saudi Arabia and Russia. Supply disruptions in Iraq and Nigeria have also been a factor, he added.
Recently, the oil market has seen a variety of events that have helped keep a lid on tanker rates, including lower supply and uncertain demand for oil. As we noted earlier this week, even a violent flare-up of hostilities in the Black Sea has done little to push shipping costs higher, and some fear it could force vessels to trade outside the region, further weighing on rates.
The impact is especially evident on Aframax tankers, which can typically hold about 700,000 barrels of crude, and which have been instrumental in keeping Russian oil in circulation. Rates for the ships have plunged from record levels reached last year, when Russia relied heavily on them to transport oil in the aftermath of its invasion of Ukraine.
Daily earnings for Aframaxes crossing the Mediterranean have crashed to $5,905 this week, the lowest since June 2022, from more than $30,000 a month ago, according to data from the Baltic Exchange; the rate soared to a staggering $157,744 on Nov. 25. As shown below, the Aframax rate on the route from the North Sea to continental Europe is now near a 17-month low. Earnings for Suezmax tankers, which can carry 1 million barrels of crude, from the Black Sea to the Mediterranean have fallen to the lowest level since February 2022.
Meanwhile, rates for the largest supertankers known as Very Large Crude Carriers, or VLCCs, have seen a less pronounced decline. There has been a shift toward using supertankers and other large vessels to transport oil from the US Gulf, West Africa and Latin America, according to shipbrokers. Still, the benchmark supertanker rate from the Middle East to China has erased most of its gains after spiking in June.
As Bloomberg observes, Russia has relied heavily on Aframaxes for its outbound shipments, shifting much oil transport to a shadow fleet of older vessels amid its war in Ukraine. Many of those ships would have been scrapped in more normal times and their continued use frees up the rest of the fleet for other routes. Freight rates for Aframaxes initially slumped late last year, when a European Union ban on seaborne shipments of Russian crude took effect, but later the ban was discovered to be toothless.
Rates have eased further, as Moscow is now following through with export cuts it declared several months ago in response to Western sanctions. Russian crude shipments from the Baltic and Black Seas — primarily in the form of Russian flagship Urals grade — slumped in July to 1.79 million barrels a day, the lowest this year.
Lower crude supplies in other regions are also weighing on shipping rates. Flows from Iraq’s semi-autonomous Kurdistan region to the port of Ceyhan in Turkey have been halted since March. There has been no significant progress on resuming flows, which are usually about 500,000 barrels a day.
In Nigeria, loadings of Forcados crude — typically the country’s largest export grade — have been suspended for almost a month due to leaks at the terminal. Elsewhere, shipments of Caspian CPC Blend crude from Kazakhstan are expected to drop by 200,000 barrels a day in August due to planned maintenance.
