Oil tanker rates are ending the year on a high even as the U.S. extended a moratorium against Cosco shipping as industry fundamentals including seasonal peak winter demand and higher fuel prices bolstered freight, industry sources said.

The higher rates have put a dampener on an expected surge in exports of U.S. crude to China as the two nations edge closer to a trade deal, which some sources said should lead to the removal of a 5% tariff on crude oil.

Rates on the long-haul U.S. Gulf Coast to East Asia edged up to $12.3 million per very large crude carrier (VLCC) voyage, according to a fixture list released on Friday. Trafigura and Occidental each booked one VLCC to load in end-January for Ningbo, the fixture showed.

This compares with a similar booking by ExxonMobil at the start of the week that was priced at $11.8 million and a charter at $10.5 million for shipment from the USGC to South Korea, according to a Dec. 11 fixture list.

"The arbitrage to North Asia is not really open, seems the landing cost will be high" said one crude analyst, adding that opportunistic and term barrels will continue to move as seen by the latest fixtures.

The U.S. had in September imposed sanctions against six Chinese shipping companies, including two units of the Cosco shipping group, for transporting Iranian oil.

The move sent freight rates skyrocketing across the board, with the USGC-East Asia route for a VLCC shooting up to as much as $23.6 million, a fixture list showed. It is not known if the booking was failed. Prior to these disruptions to the shipping industry, a similar booking only cost $6.2 million on Sept. 9.

In October, the U.S. Treasury Department issued a two-month waiver to its Cosco sanctions, which helped bring down the lofty freight rates, and this has now been extended to Feb. 4 but the impact has not been the same.

"The market has not been affected by the Cosco deadline being pushed back, the high rates on the market now is purely driven by sentiment and a tighter availability of tonnage," said one shipbroker.

Aside from rates on the arbitrage U.S. Gulf Coast to East Asia voyage, a key route for incremental crude oil shipments to the region, freight has risen on both clean and dirty tankers, according to data from the Baltic exchange.

Rates on the busy Middle East to China VLCC route rose to Worldscale (WS) 122.25, or $103,168 per day on a time charter equivalent (TCE), Baltic data showed. In the aftermath of the U.S. Cosco sanctions freight jumped to a high of WS 313.22 on Oct. 11 and had slipped to a low of WS 73.54 on Nov. 13 before recovering for much of this month.

Market sources said the busy year-end period, in part due to seasonal heating fuels demand, has led to the uptick in shipping rates since the start of December as Asian refiners crank up runs, which in turn meant bigger crude imports.

On clean tankers, rates for a long-range II tanker on the Middle East to Europe route, major export avenue for surplus distillates, rose to $34.614/mt on Dec. 20, which worked out to TCE of $23,623/day, according to Baltic data.

At its peak, rates on the route, which are also representative of clean product shipments from west coast India to Europe, jumped to $50.454/mt on Oct. 15 before easing to $28.153/mt on Nov. 8, the Baltic data showed.

In the lead up to the new year, shipping costs are already elevated by the need to burn more expensive very low sulfur fuel oil (VLSFO) or low sulfur marine gasoil (LSMGO) as mandated by the International Maritime Organization and local authorities. The higher fuel costs have been factored into the Worldscale Association's 2020 flat rate calculations.

"Rates are quite firm going into the new year, there's plenty of cargoes looking to be moved," the shipbroker said. "In the first quarter, everybody will fix on the new Worldscale, which will include the higher low sulfur fuel costs."

"Things should quieten down by the second quarter," he added. "But the higher VLSFO cost will make things more expensive in general."

 

-- Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

Copyright, Oil Price Information Service