Sanctions on Russia push oil tanker prices to record highs
What's the story
The cost of hiring an oil tanker on a key route has hit a five-year high, amid rising demand for alternatives to sanctioned Russian crude. The spike comes as US sanctions on the oil exports of Russia's Rosneft and Lukoil took effect last week. The benchmark rates for very large crude carriers (VLCCs), which can carry up to two million barrels from the Middle East to China, surged by 576% this year.
Rate surge
VLCC rates hit record high amid supply shifts
The VLCC rates on the key route nearly touched $137,000 per day last week, the highest since late April 2020. The previous peak was just two weeks ago. A broader index covering VLCC rates across multiple routes also hit a new five-year high of $116,400 per day. The surge in supertanker bookings is largely due to US sanctions on Russian oil exports and increased output from Middle Eastern producers willing to provide more crude.
Demand shift
Increased bookings and higher earnings for supertankers
The demand shift is already visible with increased bookings for late November and December. Some 12 vessels have been asked to pick up crude from the Middle East, boosting supertanker earnings. The rising rates have also benefited the wider tanker fleet, with smaller-sized vessels seeing higher earnings as they move into the Middle East to pick up cargoes on routes usually taken by VLCCs.
Profit pursuit
Tankers switch to crude for better profits
Earlier this month, a record number of tankers that usually carry products like jet fuel and diesel switched to carrying crude. This process, known as "dirtying up," was done in pursuit of better profits. The shift in demand and the subsequent increase in earnings suggest changes in the dynamics of the global oil market.