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Spot rates in the Middle East Gulf have increased dramatically
on Thursday and Friday after two tankers were attacked in the Gulf
of Oman. Concern around tensions in the region pushed forward rate
agreements (FFAs) and spot rates much higher, with a VLCC now
getting paid more than 15,000 USD per day to carry crude oil from
the Middle East Gulf to China, much higher than the 11,000 USD per
day it would earn two days before the incident.
However, there has been only limited activity since then, as
most owners avoid fixing before the picture is clear. They still
await new insurance quotes. Meanwhile, July contract rate has been
pushed close to 25,000 USD per day, as supply is expected to
tighten over the next couple of weeks, with most ballasters now
heading to other exporting regions, such as West Africa.
The increase is partially driven by expectations of higher
insurance costs, together with the anticipated increase of bunker
fuel prices in the region. Over the next couple of weeks, vessel
availability near the Middle East Gulf is set to drop, since
several owners will consider targeting other loading areas to avoid
the risk of another attack against oil tankers. The tightening up
of supply could then push spot rates in the region much higher,
closer to levels last seen in 2019 Q1.
Some Greek owners proved to be ready to take up the risk and fix
some of their ships to quickly get the advantage of the spike,
while most other owners simply wait to see what could follow.
Essential information still needs to be provided by P&I
(protection and indemnity) clubs, as the market expects additional
war risk premiums. Some of the major names in the market, such as
Sovcomflot, Trafigura and DHT Holdings have already suspended any
activity in the region last week.
If the tension between the US and Iran escalates further, then
the reaction could turn much more drastic, with spot rates in the
Middle East Gulf to secure more support in case of more disruptions
in local oil flows. Major oil importers will then prioritize to
urgently stockpile to avoid outages and upcoming price spikes.
With a plethora of ships of different types getting blockaded
within the Gulf, more time will be required to securely exit or
enter the region, which will allow owners to demand a premium to
approach the loading areas. Most requests by the end of June have
already been covered, with 43 VLCC's fixed to load in the Gulf so
far.
Current vessels (laden and ballast) types in the Middle
East Gulf
For as long as Iran does not get directly attacked, any major
disruption is not considered very probable. The market looks to be
rather well balanced so far, especially as demand is muted due to
refineries in maintenance across Asia. Meanwhile, oil stocks have
been hitting record highs for this year across many importing
countries.
But in any different case, if the US and its allies decide to
target Iran directly, massive disruptions could be observed in a
short time. Oil trade flows through the Strait of Hormuz would then
fall sharply, with a spike to follow both in oil prices and tanker
rates, as none of the other regions could step in to fill the gap
and add up to 17.5 million b/d of crude exports.
Crude oil liftings from the Middle East Gulf already reached
rather low levels during last week, the lowest for this year
excluding the limited activity during the Christmas week. However,
activity is expected to return back to normal levels quickly this
week.
Posted 18 June 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, S&P Global Market Intelligence
