A tanker scheduled to carry crude from the U.S. Gulf Coast to China reportedly costs nearly 10 times the normal rate, exposing how conflict, vessel shortages and longer trade routes are reshaping the oil market.
New York | Published at 4:43 p.m. EDT
A reported $76 million charter for a supertanker sailing from the United States to China has delivered an extraordinary warning about the condition of the global oil transportation system.
Trading company Trafigura chartered the Alexandros, a very large crude carrier, or VLCC, for a voyage from the U.S. Gulf Coast to China, according to CNBC, which attributed the information to a person familiar with the transaction. The vessel is expected to load around November 19.
The reported price is remarkable because a comparable voyage would ordinarily cost between $7 million and $10 million under prewar market conditions. At $76 million, Trafigura could be paying nearly 10 times the previous norm merely to transport the crude. KhanList
Trafigura has not publicly disclosed the commercial terms of the fixture. The identity of the cargo seller and the Chinese buyer also had not been publicly confirmed as of Wednesday afternoon.
The Alexandros can carry approximately 2 million barrels if loaded to the typical capacity of a VLCC. On that assumption, the freight charge alone would amount to roughly $38 for every barrel aboard.
That figure does not include the price of the crude, refining costs, financing expenses, port charges that may fall outside the charter agreement, or the cost of moving refined products to consumers. It is essentially the transportation toll for carrying the oil across the world.
The tanker shortage has gone global
The booking is not an isolated market curiosity. It is the latest and most dramatic evidence that the conflict involving the United States, Israel and Iran has created an international shortage of immediately available oil tankers.
Middle Eastern producers have increasingly relied on a shuttle arrangement to reduce the time individual vessels spend in areas exposed to attack. Under that system, one tanker carries oil through the Strait of Hormuz and transfers it to another vessel outside the Persian Gulf. The second tanker then completes the longer trip to markets in Asia or elsewhere.
The arrangement can keep exports moving, but it requires more ships and more transfer operations to deliver the same volume of oil. Tankers that might otherwise be available for voyages from the United States, West Africa or Latin America become tied up in the Middle Eastern system.
This has pushed freight prices higher even on routes that do not pass through the Strait of Hormuz.
The escalation has been rapid. On September 4, S&P Global Commodity Insights reported that the rate for a VLCC voyage from the U.S. Gulf Coast to Asia had reached a record $29.5 million. At the time, market participants cited a limited number of available vessels in the Atlantic Basin and uncertainty surrounding Hormuz. S&P Global
Argus separately reported a U.S. Gulf Coast to China assessment above $14 per barrel in early September. That was already a record in its data series, which began in 2017. Latest Market News
A reported $76 million fixture only a month later would represent a profound acceleration. It suggests that shipowners are placing an exceptionally high value on vessels that are available, commercially acceptable, properly insured and positioned to load during the required window.
Why would anyone pay $76 million?
The size of the rate raises an obvious question: Why would a trader agree to it?
Commodity traders do not evaluate freight costs in isolation. They calculate the complete value of buying crude in one region and delivering it to another. The transaction can still make sense if the price of the American oil is sufficiently discounted, if a refinery needs a particular type of crude, or if the trader has a contractual obligation to deliver barrels by a specific date.
Storage economics may also matter. A buyer could accept a high transportation cost if it expects oil prices to increase before the cargo arrives. The commercial calculation can include futures contracts, currency hedges, insurance and the expected price of alternative supplies.
Still, a $38-per-barrel freight estimate creates an unusually high hurdle. It could erase the price advantage of U.S. crude compared with Middle Eastern or Russian barrels unless the underlying cargo was purchased under especially favorable terms.
Saudi Arabia is already responding to elevated transportation costs. Saudi Aramco cut the official selling price of its flagship Arab Light crude for Asian customers to a six-year low for November. Asian refining sources told Reuters that the discount was intended partly to compensate buyers for unprecedented freight expenses.
Reuters reported that hiring a VLCC capable of carrying 2 million barrels from the Gulf to China had reached approximately $1.2 million per day, compared with about $80,000 a day one year earlier, based on LSEG data. Reuters
That means transportation is now influencing the price producers charge for the oil itself. It is no longer a secondary expense buried inside a trading contract.
What this means for American oil
For U.S. producers, extraordinarily high tanker rates are a mixed development.
Disruptions in the Middle East can increase interest in American crude because buyers want alternative supplies. The United States has extensive production, sophisticated export terminals and direct access to the Atlantic shipping market.
However, those advantages are weakened when transportation becomes prohibitively expensive. A Chinese refinery may want American oil, but the delivered price matters more than the price at the Gulf Coast terminal.
Persistently high rates could encourage Asian buyers to choose cargoes that require shorter voyages. Refiners may also reduce processing rates, delay purchases or draw oil from storage while waiting for freight markets to stabilize.
The immediate benefit could flow primarily to tanker owners, whose ships have become scarce assets. Higher freight revenue, however, comes with higher insurance premiums, security concerns, possible crew risks and greater uncertainty about schedules.
Will consumers pay more?
One $76 million voyage will not independently determine gasoline or diesel prices in the United States. Retail fuel prices are shaped by crude benchmarks, refinery capacity, inventories, taxes, regional transportation constraints and consumer demand.
The larger danger is repetition.
If extreme charter prices become common, they will raise the delivered cost of crude and refined fuels across multiple markets. Refiners may pass some of that expense to wholesalers, and wholesalers may eventually pass it to drivers, airlines, trucking companies and manufacturers.
The consequences could also reach products that appear unrelated to oil. Higher marine fuel and shipping expenses can increase the cost of transporting food, chemicals, plastics and manufactured goods.
The most important message in the Alexandros booking is therefore not that one company agreed to an expensive voyage. It is that the global oil market may have enough crude but not enough readily available ships to move that crude efficiently.
A supply chain can experience a shortage without running out of the commodity itself. In this case, the scarce resource is safe, insurable and available tanker capacity. The reported $76 million price is what that scarcity now costs.