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Tanker Costs Surge as Chinese Firms Sanctioned Over Iran Oil

Alaric Nightingale and Firat Kayakiran
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Tanker Costs Surge as Chinese Firms Sanctioned Over Iran Oil

(Bloomberg) -- Oil-tanker costs are surging after the U.S. slapped sanctions on Chinese companies it accused of hauling Iranian crude, prompting a scramble in freight markets to secure alternative vessels.

Rates for ships hauling 2 million-barrel cargoes of Middle East oil to Asia jumped 19%, according to data from the Baltic Exchange in London. Shares of tanker operators also gained. The cost to transport U.S. crude to Asia on supertankers rose 6.3% to $8.5 million on Thursday, according to people with knowledge of the situation.

“There’s a lot of panic out there,” said Halvor Ellefsen, a tanker broker at Fearnleys in London. “Modern vessels are available, but just hard to get.”

The list of sanctioned Chinese companies includes a unit of COSCO Shipping Corp., which operates the world’s second-largest tanker fleet. The penalties bar U.S. citizens and companies from dealing with the sanctioned entities, effectively blocking them from American banks at the heart of the global financial system. As a consequence, oil traders spent the day canceling bookings and letting provisional charters lapse.

Tankers rates from the Middle East to China were 75.13 Worldscale points, the Baltic Exchange said Thursday. The same rate was at 63.38 on Wednesday. Worldscale is an industry standard that allows traders to easily calculate costs and returns from thousands of different tanker routes. Shares of Frontline Ltd. advanced 7.5% in Oslo while Euronav NV gained 8.1% in Antwerp.

Rates were already rallying after attacks on Saudi oil installations earlier this month obliged traders to seek alternative cargoes, particularly from suppliers in the U.S. and elsewhere in the Atlantic Basin.

“This certainly gives a slight premium to non-Chinese VLCCs,” said Randy Giveans, an analyst at Jefferies LLC in Houston. Rates were already being boosted for multiple reasons including the Saudi attacks, ships getting refitted for new sulfur-emission rules, and importer nations building stockpiles, he said.

The sanctioned COSCO unit, COSCO Shipping Tanker (Dalian) Co., operates 26 supertankers capable of hauling a combined 52 million barrels of oil, according to data from Clarkson Research Services Ltd. Its parent company is not affected by the sanctions, the U.S. Treasury said.

China opposes the penalties against its companies and citizens and has consistently disagreed with the U.S. imposing unilateral sanctions, Geng Shuang, a foreign ministry spokesman, said at a media briefing.

“Western charterers may avoid all those COSCO VLCCs, but China Inc. is still the largest importer of crude oil, so domestically alone there could be usage of those vessels,” said Jon Chappell, an analyst at Evercore ISI in New York. “Longer term it’s hard to see how it has a sustainable impact unless the ships are banned from global trading.”

(Updates with Gulf Coast-Asia freight cost in second paragraph.)

--With assistance from Serene Cheong, Sharon Cho, Dan Murtaugh, Rachel Graham and Lucia Kassai.

To contact the reporters on this story: Alaric Nightingale in London at anightingal1@bloomberg.net;Firat Kayakiran in London at fkayakiran@bloomberg.net

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net, Stuart Wallace, John Deane

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