WSJ 7
https://www.wsj.com/articles/oil-shipping-costs-surge-threatening-u-s-exports-11570213678
Oil Shipping Costs Surge, Threatening U.S. Exports
Gains in oil prices that followed crippling attacks on Saudi Arabian production facilities last month proved short-lived, yet the expense of shipping crude across the ocean has continued to soar.
The cost of chartering a very large crude carrier, or VLCC, to ferry oil from the U.S. Gulf Coast to Asia has surged to $10 million, or $5 a barrel—about twice the price before the attacks in Saudi Arabia, according to analysts.
The increase has raised the price of U.S. oil sold overseas at a time when countries in Asia—particularly Japan, South Korea and India— are racing to replace lost deliveries from Saudi Arabia and bolster their stockpiles to buffer against further Middle Eastern supply disruptions .
The cost of chartering a very large crude carrier from the Gulf Coast to AsiaSource: RBC Capital Markets
.millionJan. ’19Feb.MarchAprilMayJuneJulyAug.Sept.Oct.3456789$10May 24, 2019x$4.18 million
Heightened demand for tankers to make the voyage from the U.S. Gulf Coast, from which most barrels leave the country, is meeting a shortage of available ships. The U.S. last month blacklisted several Chinese shippers for allegedly carrying Iranian crude in violation of U.S. sanctions. Meanwhile, many tankers are in harbor to be retrofitted to comply with new international emissions standards that go into effect in the new year.
High transport costs threaten to send overseas buyers looking elsewhere and reduce U.S. crude exports, which reached new highs over the summer amid turmoil in the Middle East. Lower export volumes would likely reduce domestic oil prices, which would be a boon to U.S. motorists and refiners, not to mention unsanctioned tanker owners, but could hurt domestic drillers already struggling with low oil prices.
U.S. crude-oil priceSource: FactSetAs of Oct. 4, 5 p.m. ET
.a barrelJan. ’19JulyAprilOct.444852566064$68
U.S. crude-oil exportsSource: U.S. Energy Information Administration
.million barrels a day2016’17’18’190.00.51.01.52.02.53.03.54.0
“Asia has been pulling barrels from everywhere,” said Michael Tran, an analyst with RBC Capital Markets. “If it becomes uneconomical to ship U.S. barrels to Asia, that essentially leaves barrels stranded in the U.S.”
West Texas Intermediate, the U.S. price gauge, gained 0.7% to close at $52.81 a barrel on Friday. Brent crude, the international benchmark, rose 1.1% to $58.37.
Those prices are below levels immediately before the Sept. 14 attacks on Saudi production facilities that shut down about half of the kingdom’s output. Oil prices surged 15% right after the attacks but retreated as Saudi Arabia tapped reserves to make up for lost production and a dim economic outlook reduced demand forecasts .
“If you’re an Indian buyer, or in South Korea or Japan, you’re saying we should do two things: diversify where we buy barrels from, and, two, build up our inventories,” said Randy Giveans, a shipping analyst at Jefferies Financial Group Inc. “They’re diversifying their supplies from farther distances,” he said.
Those sources of supply include not just the U.S., but also the North Sea, West Africa and Brazil, he said.
South Korea and India in particular have ramped up oil purchases from the U.S. in recent months amid Middle Eastern turmoil, according to U.S. Energy Information Administration data. U.S. crude exports reached a peak of about 3.2 million barrels a day in June. South Korea was the biggest buyer by a wide margin, importing about 605,000 barrels a day, or about 20% of all U.S. crude exports.
Share-price performance of oil shippersSource: FactSetAs of Oct. 4, 6:30 p.m. ET
%DHT HoldingsEuronavFrontlineInternationalSeawaysJuly 8July 22Aug. 5Aug. 19Sept. 2Sept. 16Sept. 30-30-25-20-15-10-50510152025
Some buyers are working around the shortage of 2-million-barrel capacity VLCCs by splitting shipments into two 1-million-barrel Suezmax tankers, which has propelled day rates for those ships as well, Mr. Giveans said.
Crude buyers should see some relief in the coming weeks as more VLCCs return to the market once they are retrofitted with emissions-reduction equipment, he said.
That work has generally taken longer than expected, though, which has ships backed up in Asian ports where the new equipment is being installed, he said.
For his part, Mr. Giveans said he expects many Asian buyers will opt to pay higher shipping costs now rather than risk oil prices rising if they wait for tankers to return to the high seas.
“You’re not going to take that commodity risk to save a dollar or two,” he said.