New York, 21 October. The average global freight rate for oil has risen to $20 a barrel from $3 a year ago, and on Middle Eastern routes to $35, Goldman Sachs analysts have calculated; high rates will persist, in their view, because the bank does not expect a quick end to the Middle East crisis.
Freight is the charge for carrying cargo by ship. The analysts break down the increase in its average cost as follows: $7 a barrel is the war-risk premium in the Strait of Hormuz, $4 comes from more expensive bunker fuel, and another $4 from ship-to-ship transfers of oil in the Gulf of Oman. In early October the cost of a supertanker voyage from the Persian Gulf to East Asia exceeded $1.4 million a day, a record. The Middle East conflict has changed trade routes, and more and more tankers are forced to make long and inefficient voyages.
"Higher freight rates for longer pose some risk to our Brent forecast, alongside the risks of more intense attacks on shipping, damage to oil infrastructure and a higher geopolitical risk premium," the bank's commodity analysts write. Goldman's base forecast is $90 a barrel for Brent by the end of the year, and expensive freight may force it to raise that forecast.
The market is already above this forecast. On Wednesday the December Brent futures contract rose by 1.1% to $110.03 a barrel, and WTI by 1.3% to $99.08. According to Morgan Stanley, because of attacks on ships about 12 million barrels a day now pass through the Strait of Hormuz, 4 million fewer than at the September peak. Shipping Russian oil out through the Black Sea has also become more dangerous, according to Neft i Kapital: attacks have shifted towards the coasts of Romania and Bulgaria, which have asked NATO for help.
What it means: The war in the Middle East has made not only oil expensive but also its delivery: carrying a barrel costs almost seven times more than a year ago, and Goldman admits that expensive freight may force it to raise its Brent forecast.
Who benefits: Tanker owners are getting record rates, more than $1.4 million a day for a supertanker on a Middle Eastern route; Goldman warns that expensive freight may also raise expectations for the Brent price. For Kazakhstan the issue concerns the CPC Blend grade, which is shipped by tanker from the Caspian Pipeline Consortium terminal on the Black Sea; how freight rates affect its price is not assessed by the Goldman analysts.
Background: Iran says it will not reopen the Strait of Hormuz until the US meets the demands of the Islamabad memorandum of 18 June.
List of sources used: InfoTEK, Neft i Kapital
Artificial intelligence was used in preparing this material.
