Oil Shipping Rates Surge as US Sanctions Squeeze Supply

Freight rates for shipping crude oil soared following the United States’ expansion of sanctions on Russia’s oil industry. The sanctions target key Russian producers and the shadow fleet of tankers used to transport oil to countries like China and India, forcing traders to seek alternative shipping options and oil supplies.

Impact on the Shadow Fleet

The U.S. sanctions, announced last Friday, have hit about 35% of the 669 shadow fleet tankers, according to Lloyd’s List Intelligence. These vessels, often used to transport oil from Russia, Venezuela, and Iran, have been crucial for evading Western restrictions. Many of these tankers have been essential in delivering discounted Russian oil to China and India, which cannot access these supplies through Western-regulated routes.

Rising Freight Costs and Shifting Trade Routes

Freight rates for Very Large Crude Carriers (VLCCs), capable of transporting 2 million barrels of oil, have surged. Unipec, the trading arm of Sinopec, Asia’s largest refiner, has been at the forefront, chartering multiple supertankers and purchasing large crude quantities from Europe and Africa. This includes shipments of Norwegian Johan Sverdrup, Senegalese Sangomar, Ghana’s Ten Blend, and Angolan Djeno crude.

Rates for the Middle East-to-China route (TD3C) have jumped 39% since Friday, reaching $37,800 per day, the highest since October. Similarly, freight rates for Russian ESPO blend crude shipments from Kozmino port to North China more than doubled to $3.5 million, as limited vessel availability drove shipowners to demand massive premiums.

Tightening Tanker Availability

The sanctions have further constrained tanker availability, particularly as newly sanctioned vessels are now stranded outside China’s Shandong province. Shandong Port Group imposed a ban on these vessels even before the U.S. announcement, compounding the challenges. Vortexa analytics indicate that over 85% of Russian crude voyages into Shandong were conducted by newly sanctioned ships.

As a result, traders are scrambling for unsanctioned vessels to maintain shipments of Russian and Iranian crude, tightening the supply of tankers in the broader freight market. Analysts from Kpler predict that additional ships will be absorbed into the shadow fleet, further reducing availability in non-sanctioned markets.

Global Freight Rate Increases

Freight rates across various routes have seen sharp increases:

• VLCC rates from the Middle East to Singapore rose to WS61.35, up WS11.15.

• Middle East-to-China VLCC rates climbed to WS59.70, a WS10.40 jump.

• West Africa-to-China VLCC rates increased WS9.55 to WS61.44.

• Shipping crude from the U.S. Gulf to China now costs $6.82 million per voyage, up $360,000 from the previous week.

Middle East Crude in High Demand

Chinese and Indian refiners are turning to alternative suppliers in the Middle East, where crude benchmarks like Dubai, Oman, and Murban have risen to their highest premiums in over a year. Since last week, Unipec has booked eight tankers for Middle Eastern crude, with PetroChina and Rongsheng also chartering vessels.

Outlook

The U.S. sanctions have created a ripple effect in global oil logistics, driving up costs and tightening supply in the non-sanctioned shipping market. As traders adapt, new vessels are expected to join the shadow fleet, intensifying competition for unsanctioned tankers. The resulting higher freight rates and supply constraints are set to reshape global crude trade patterns, especially for nations reliant on discounted oil from Russia and Iran.

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