Oil tanker shipping rates are marking time even as tensions in the Middle East were stoked in the aftermath of a U.S. attack that killed a top Iranian general with gains mainly led by seasonal fuel demand, according to industry sources.

Freight rates, which have risen considerably in December amid growing demand after refiners cranked up runs to meet peak winter heating fuel requirements, edged up slightly on Friday following the U.S. airstrike on Baghdad airport that killed Iranian General Qassem Soleimani.

Rates on the busy Middle East to China very large crude carrier (VLCC) route rose 0.34 Worldscale (WS) points to WS 122.33, or $103,274 per day on a time charter equivalent (TCE), according to data from the Baltic exchange.

In the aftermath of the Cosco sanctions in late September, 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.

It then rose steadily over the past month as demand gained traction.

Shipping sources also added that insurance companies have yet to raise their additional war risk premiums (AWRP), which they were quick to do following attacks on tankers in the Straits of Hormuz last year, as well as after the September drone and missile attack on Saudi oil installations.

"There's no real panic, the AWRP has not gone up yet," said one shipbroker, adding that it was likely that vessels that are waiting for orders will probably wait off the coast of Oman instead of Fujairah given past incidences of attacks on tankers in that area.

Benchmark Brent crude futures, on the other hand, gained more than 3% on Friday following the attack and has put on another 1.4% in Asian afternoon trade to $70.02/bbl. Earlier on Monday it jumped to a high of $70.74/bbl.

"Whilst it remains likely that any Iranian response will be land-based, it is not inconceivable that the threat will spill out into the maritime domain," maritime security specialist, Dryad Global, said on their website. "Operators in the region should be aware that the current threat context within the region's waterways remains largely unchanged."

Dryad Global said threat in the region was still high and primarily focused on U.S. and Saudi-flagged vessels.

"Dryad assesses that it remains highly unlikely that Iran will attempt to close the Strait of Hormuz, a claim it has often made," it added that, "to do so would pose geopolitical issues for Iran, and would lead to potentially souring its key relationship with China."

Freight rates are currently already at high enough levels to curb arbitrage flows for both crude oil and clean products, traders said.

The long-haul U.S. Gulf Coast (USGC) to East Asia route for example, a key voyage in the shipment of arbitrage crude oil, went quiet this past week with no fixtures emerging for February loading cargoes, shipping lists from last week showed.

"Freight is very high...the arbitrage for U.S. barrels is closed," said one analyst, adding that a draw in U.S. inventories is also lending strength to WTI prices making it more costly to ship cargoes from the USGC to Asia.

The most recent charter on the USGC-East Asia route was listed a week ago on a Dec. 30 fixture list for the booking of the Marine Hope by Trafigura for $12.3 million bound for South Korea.

This compares with a similar booking by ExxonMobil 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.

In total, 11 VLCCs have provisionally been chartered to load in January from the USGC to East Asia with the bulk bound for South Korea, which has in the past few months raised its imports of U.S. crude oil just as China pulled back its purchases amid the trade war between Washington and Beijing.

Traders said recent higher freight rates were also in part due to more costly bunker, as the industry moved to use more expensive very low sulfur fuel oil (VLSFO) or low sulfur marine gasoil (LSMGO) as mandated by the International Maritime Organization and local authorities.

In Singapore, the world's largest bunker port, delivered VLSFO rose to $727/mt on Jan. 3 compared with $548.37/mt on Dec. 3, data from IHS Markit OPIS show.

Over the same period LSMGO was at $725/mt vs $570.06/mt, while HSFO was at a much cheaper $370.823/mt vs $246.962/mt, the data showed.

"The activity remaining solid and with cargoes now fixing for late Jan. liftings, this indicates that refiners see demand holding up well into Q1, quite possibly because of IMO effects as demand for middle distillate fuels rise," Arctic Securities said on Monday in its daily oil and tankers report.

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

Copyright, Oil Price Information Service