Shipping U.S. Oil to China Now Costs More Than a Rocket Launch

Shipping oil from the United States to China now costs around $80 million per voyage, more than the $74 million price of a standard SpaceX Falcon 9 launch, according to Bloomberg.

What You Need to Know About U.S.-China Oil Tanker Freight Rates

• A global shortage of oil tankers has pushed freight rates to record levels as trade routes shift following the war with Iran. Shipbroker SSY says that, even after adjusting for inflation, rates are the highest since supertankers began operating in the 1960s.
• A recent fixture on the U.S.-China route worked out to $41 per barrel transported. Last year, the average was $4.50 per barrel. The new rate is equivalent to roughly 45% of the price of West Texas Intermediate (WTI) crude, which was trading near $91 a barrel on Friday.
• Vitol Chief Executive Russell Hardy said the tanker fleet is unable to meet demand. “There really aren’t enough ships to meet all the demand,” he said at a conference this week.

Longer Routes Reduce Available Tanker Capacity

• Middle Eastern producers have begun transferring oil between vessels near the Strait of Hormuz. In some cases, the operation adds around a week to voyages, reducing the effective availability of ships in the market.
• Traffic through Hormuz has recovered to around 80% of prewar levels, according to industry executives. Tankers that had sailed empty to other regions now need to be repositioned to meet the recovery in Gulf shipments.
• The disruption of Iranian oil exports to China has also increased demand for tankers on other routes. Iranian attacks have left some vessels undergoing repairs, while other ships have begun sailing around Africa to avoid Houthi attacks.

Higher Freight Costs Pressure Refiners and Exporters

• Rising transportation costs make crude oil more expensive for buyers and squeeze refinery margins. Repsol reported a margin of $36 per barrel in the third quarter, but RBC analysts estimate that it fell to around $15 in October, partly because of higher freight costs.
• In West Africa, sellers are offering discounts on crude to offset the higher cost of transporting cargoes to Chinese refineries. The region depends on those refiners, located around 16,000 kilometers away.
• Shipowners have also raised prices for secondhand vessels amid stronger demand. A modern oil tanker is now valued at $240 million, more than 60% above the level recorded at the end of last year, according to Clarkson Research Services.

Source: UOL

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