Oil shipping rates soar as US supertanker sanctions rattle crude trade

Key oil freight rates from the Middle East to Asia rocketed as much as 28 percent on Friday in a global oil shipping market spooked by United States sanctions on units of Chinese giant COSCO for alleged involvement in ferrying crude out of Iran.

In what the State Department called "one of the largest sanctions actions the US has taken" since curbs were re-imposed on Iran in November last year, two units of COSCO were named alongside other companies in claims of involvement in sanctions-busting shipments of Iranian oil.

The surprise move, affecting one of the world's largest energy shippers, operating more than 50 supertankers, comes as US President Donald Trump seeks to exert maximum pressure on Iran to drop nuclear programs.

As some Asian oil buyers rushed to secure vessels, rates for chartering supertankers, or very large crude carriers (VLCCs), to load crude oil from the Middle East to north Asia in October surged nearly 19 percent overnight to about 75-76 points on Worldscale, an industry tool used to calculate freight charges, shipping and industry sources said.

That means an increase of about $600,000 per ship, a Singapore-based crude oil trader said.

The rates for loading Middle East crude to west coast India in the second week of October jumped 28 percent to 80-92.5 points after Reliance Industries Ltd booked two supertankers overnight, industry sources said.

But there was also uncertainty over how widely the sanctions on the COSCO units - COSCO Shipping Tanker (Dalian) Co, Ltd and its subsidiary COSCO Shipping Tanker (Dalian) Seaman & Ship Management Co, Ltd - will be implemented.

COSCO Shipping Tanker (Dalian) owns and manages at least 36 tankers for crude and refined products, including 18 VLCCs, according to shipping sources and Refinitiv data.

Industry sources said some buyers were holding off while they check with legal teams to better understand the impact of the sanctions.

"The market is fearful of sanctions so refiners are taking some preventive measures. We'll have to see how widely implemented the sanctions will be," said KY Lin, spokesman for Taiwanese refiner Formosa Petrochemical, a major crude oil buyer in Asia.

Friday's jolt left shipping rates springing back to levels not seen since mid-September drone and missile strikes on key Saudi Arabian oil production facilities roiled global markets. The COSCO vessels are equal to about 7.5 percent of the world's fleet of supertankers, according to Refinitiv data.

"Charterers are in trouble," a North Asian shipbroker said, declining to be named citing company policy. "It was terrible news for every one of us with the Saudi drone attack, and now the market has to deal with US sanctions on COSCO."

"Good news for owners, good time for them to earn money," the broker said.

On Thursday, Unipec, the trading arm of Asia's largest refiner Sinopec and India's largest refiner Indian Oil Corp, cancelled bookings of some COSCO ships and scrambled to find alternative ships to move their crude on.

"Rates have definitely been pushed higher by these sanctions," said an executive at a top shipbroker in Singapore, adding that ships carrying Middle East and US crude to Asia were subject to the biggest impact. The broker declined to be identified, citing company policy.

Freight rates for shipping naphtha and other clean oil products were also affected with those from the Middle East to Japan jumping 13 percent to their highest levels in nearly two weeks, according to industry sources and Refinitiv data.