- Wild swings of VLCC rates appear to be over for now
- Normal tanker operations gradually resume
- Geopolitics, GNSS interference still pose risks
Oil shipping rates are facing downward pressure from seasonal demand weakness after experiencing their largest volatility in recent years, with tanker operators resuming normal trading patterns while a fragile Iran-Israel ceasefire holds, according to industry data and market participants.
Israel launched air strikes on Iranian locations, including nuclear sites and energy infrastructure, on June 13 and drew retaliation in the days that followed, before the US joined its campaign and eventually brokered a truce to end 12 days of hostilities on June 23.
The benchmark VLCC rate for transporting 270,000 mt of crude from the Persian Gulf to China jumped from $9.95/mt June 12 to a 16-month high of $20.46/mt June 24, then collapsed to $11.72/mt on June 27, Platts assessments show.
Similar trends were also observed in the Suezmax and clean LR2 markets for lifting Gulf barrels, with various degrees of volatility.
“Seasonality will play a role in putting pressure on rates until the end of the third quarter, provided that tensions don’t escalate again,” S&P Global Commodity Insights analyst Nikesh Shukla said, as demand for shipping tends to be weaker in summer months.
“But any disturbance due to the Israel-Iran conflict can throw the expectations in the air,” he said.
The two countries have accused each other of breaching the truce, but so far, they have refrained from starting another round of large-scale attacks, and ship-tracking data shows tanker companies are now more willing to send their ships to the region.
The number of unladen tankers signaling a destination in the eight countries with oil export facilities in the Gulf was 729 on June 26, compared with a recent low of 717 on June 14, according to S&P Global Commodities at Sea.
Of such ships, 408 were sailing on June 26, up from 367 on June 14. The number of tankers anchored or moored dropped to 316 from 340 in the same period. This suggests a likely easing of congestion near the Strait of Hormuz.
The number of tanker transits dipped to 37 on June 23 before jumping to 51 on June 24 and to 55 on June 25, the highest since the beginning of the conflict, CAS figures show. The daily average was 47 over June 2-8 and 46 over June 9-15.
Operational risks
With tanker operators resuming normal trading patterns, maritime authorities like the Joint Maritime Information Center have warned of persistent electronic interference in satellite navigation systems in the region.
Some Gulf states have turned up their Global Position System jammers since early June as a precaution to defend their military bases, which could affect navigational safety for ships, according to industry officials.
Hafnia, one of the world’s largest tanker operators, told Platts that it would “closely monitor developments in the Middle East” and stay “fully aligned with evolving security guidance.”
Based on industry security protocols, seafarers can rely on radar, visual recognition, and other methods when facing Global Navigation Satellite System interference. Rear Admiral Vasileios Gryparis, commander of operations at the EU’s Aspides naval mission, said the problem can be “easily overcome” by traditional navigational methods.
In general, shipping companies have so far been able to navigate through the issue. Frontline’s VLCC Front Eagle collided on June 17 with the Suezmax Adalynn off the coast of the UAE after transiting Hormuz, although it has not been confirmed whether the incident was related to electronic interference.
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Source: S&P Global
