Maritime Report: Shipping costs for crude oil expected to rise due to new energy standards and political actions

Crude oil exporters and users probably should get used to high shipping costs.

The freight-rate roller coaster that was triggered by geopolitical events in September may have leveled off, but fundamentals in the shipping industry are only getting tougher for the energy sector and will likely keep tanker costs high well into 2020.

There are fewer new vessels hitting the water in the coming months, and more tankers are making longer journeys to load up cargoes in the U.S. as buyers and sellers restructure energy supply chains. That adds up to tight shipping capacity on the horizon and higher prices in most forecasts.

Freight rates were set on fire on Sept. 25 after President Trump put sanctions on tankers run by a unit of Chinese state-owned behemoth Cosco Group for allegedly transporting Iranian oil in violation of sanctions. The move sidelined part of the global tanker fleet overnight and rattled oil transport markets.

With tankers harder to find, daily freight rates jumped from $18,500 a day to almost $300,000 within two weeks. Demand for heating oil in the Far East and Europe peaked at about the same time, adding to the pricing pressure.

Rates have since backed down to between $80,000 and $90,000 a day for tanker charters, still well above the average $25,000 break-even levels. Owners haven’t seen rates this high in more than a decade.

“I believe that we stand on very solid footing,” said Robert Hvide Macleod, the chief executive of Norway-based tanker giant Frontline Management A/S.

Content reprinted from The Wall Street Journal, By Costas Paris, Nov. 3, 2019, 8:00 am ET Read more…