Oil Shipping Costs Rise as Ukraine War Reshapes Global Trade

Buoyant energy prices are driving up the cost of shipping oil between world ports, even as a bleak economic outlook has seen crude fall near its lowest levels of the year.

Economic fallout from the war in Ukraine has cut off many of the short trade routes for oil and petroleum products across the Baltic and North Seas. Now, with Europe struggling to find new suppliers and Russia looking to send exports elsewhere, tankers are spending more time on water before reaching their destinations.

Many shipments now take five times longer en route to refineries or wholesalers than before the conflict, tanker operators and analysts say. The result is that there are fewer vessels available in a global fleet with little prospect of rapid growth in size, which is a boon for shipping companies.

Tankers have earned more than $40,000 a day on average for four months, the longest such stretch in 15 years, according to London-based shipbroker Clarksons. The spot price for modernized ships known as very large carriers, which can stretch more than three football fields in length and carry two million barrels of oil, topped $115,100 a day on November 18. of the ship’s average daily rate last year.

The price increases come at an important time for oil markets, with the Organization of the Petroleum Exporting Countries and its allies led by Russia due to meet on December 4 amid global demand and tensions with the US The following day, Western governments will begin imposing . sanctions against Russian energy exports which analysts expect will pressure traders to divert more shipments on longer routes.

The extra time in the water increased the cost of transporting oil.


Photo:

Alexander Ryumin/Zuma Press

The rising cost of oil transportation, which comes as ships carrying liquefied natural gas also fetch high prices, contrasts with forecast rates for container ships amid slow demand from retailers and factories to move cargo.

“The world’s oil supply maps are being completely redrawn,” said Christian Ingerslev, chief executive of Copenhagen-based shipping operator Maersk Tankers A/S.

Tankers departing from Primorsk, Russia, which is near St. Petersburg, reach the port of Rotterdam in the Netherlands in about four days, Teekay Tankers Ltd.

CEO Kevin Mackay said during an earnings call this month. But many Russian shipments have been rerouted on a roughly 26-day journey around the continent, across the Mediterranean, and through the Suez Canal for delivery on India’s west coast.

To replace those Russian barrels, European buyers are also turning to producers further afield including the Middle East, South America and the US.

A tanker trip from Houston to Rotterdam is about 17 days, Mr. Mackay said. Some analysts say a European Union ban on most Russian crude imports slated for December 5, as well as a similar ban on petroleum products set for February 5, could help the new trade routes. which lasts.

“Looking ahead, we expect Russia to look to divert more barrels into Asia once the EU ban comes into full effect,” said Mr Mackay.

Rising shipping rates have added a few dollars to the cost of each barrel of crude, depending on how far they travel, analysts say. Front-month futures contracts for Brent crude, the global price gauge, closed on Wednesday at $85.41 after a November selloff pulled prices close to their lowest levels of the year this week.

The impact of Europe’s cutoff from Russian energy exports on refined products such as diesel, which is vital to agriculture, trucking and manufacturing, has not been fully revealed. The cost of transporting such fuels across the Atlantic has already tripled to about $5 a barrel in 2022, Goldman Sachs analysts wrote in a note last month. They estimated that figure could double again early next year.

Tankers carrying liquefied natural gas are floating off the coast of Europe, waiting for the price of the fuel to rise. WSJ’s Joe Wallace explains how the tankers are Europe’s attempt to address the energy shortage and what it could mean for the continent this winter. Photo Illustration: Alexander Hotz/WSJ

“That’s where the tension is,” said Natasha Kaneva, head of global commodities strategy at JP Morgan. While Russia appears to have access to enough oil tankers to transport its crude, she said there is a shortage of ships equipped to transport petroleum products.

Tanker rates occasionally jump in response to geopolitical turmoil, for example when the United States in 2019 sanctioned dozens of ships operated by a major Chinese company for alleged links to illicit oil trades in Iran.

“Tanker operators appreciate years like this as they make money off each other,” said Omar Nokta, shipping analyst at Jefferies.

Mr. Nokta said the changed routes mean tankers have fewer opportunities to load cargo as they face new logistical snafus, increasing the shortage of available ships. However, tanker operators do not expect to use the current wind farm to order new vessels.

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Shipyards are backlogged with container ship orders, Ardmore Shipping Corp.

Chief Executive Anthony Gurnee said that meant new tankers would not arrive for a few years, raising the risk that they would be technologically out of date. Instead, Bermuda-based Ardmore is weighing second-hand ship purchases, a used tanker market that some analysts say could also tighten if Russian-linked companies try to acquire available vessels. arrested to help defy Western sanctions.

Mr Gurnee said Ardmore’s 10-person charter team works more like traders, devising the best mix of routes for a 30-ship fleet of product and chemical tankers.

With so much volatility in the market, he said, “there seems to be no practical ceiling on how high our rates can go.”

—Joe Wallace contributed to this article.

Write to David Uberti at david.uberti@wsj.com

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