Supertanker Shortage! Global Oil Shipping Costs "Never Before," "The Biggest Gamble in Maritime History" Profits Hugely

The global supertanker market is experiencing unprecedented supply and demand tensions, with soaring freight rates making some long-haul crude oil trade uneconomical and profoundly altering the global energy flow pattern.

The simultaneous impact of the wars in Russia and Ukraine, as well as the Middle East, on the global refining system has led to record high global diesel profit margins in August. This week, the average price of diesel in the United States rose to $6.45, a new record high.

Currently, a shipment of crude oil from Houston to Asia costs approximately $26 per barrel, or $52 million per shipment, which is about a quarter of the price of WTI crude oil futures.

Saad Rahim, chief economist at Trafigura Group, one of the world's largest commodity traders, stated frankly at the Bloomberg Commodity Investors Forum:

The cost of shipping crude oil around the world has never been higher.

Traders are concerned that high freight rates are reducing the profit margins for some refiners to processing imported crude oil into fuel to near zero, even as demand for diesel and gasoline remains strong.

High freight rates are forcing global refiners to abandon long-haul cargoes and instead scramble for local supplies. The capacity shortage has spread from very large crude carriers (VLCCs) to smaller vessels, driving up freight rates across all classes.

Meanwhile, tanker owners are reaping huge profits, with the valuation of the world's largest tanker stock soaring to a record nearly $70 billion this week. Against this backdrop, a South Korean shipping tycoon's well-planned bet of over $7 billion is becoming one of the biggest beneficiaries of this freight rate surge.

Record freight rates have allowed tanker owners to reap huge profits.

This surge in freight rates is creating enormous wealth for a small number of shipowners who dominate the tanker market.

On the industry’s core benchmark routes, the daily earnings of Very Large Crude Carriers (VLCCs) carrying 2 million barrels of crude oil from the Persian Gulf to China have exceeded US$1.2 million.

Saad Rahim, chief economist at commodities trading giant Trafigura Group, points out that as freight costs account for a significantly larger share of the total value of goods, "this will evolve into a much more serious problem once viewed from a logistical perspective."

Several shipbrokers with decades of experience said they had never seen such a scarcity of supertankers available, and many industry executives also said they had never experienced a market like this before. They pointed out that within certain time windows, there were almost no supertankers available for chartering in some regions.

The shortage of shipping capacity has spread to smaller and medium-sized vessels. The average daily earnings of Suezmax tankers have exceeded $300,000, a level that is usually only seen on routes near war zones.

Asian refiners have begun using 700,000-barrel-deadweight-capacity Aframax tankers instead of VLCCs to transport U.S. crude oil, and cargoes along the Atlantic coast (including Brazil) are now being split between two Suezmax vessels instead of the original single VLCC.

Xavier Tang, senior market analyst at Vortexa, points out:

Freight costs have never accounted for such a large proportion of crude oil land costs, but now they play a significantly increased role in the oil market, which is having a ripple effect on end buyers.

Long-haul routes are losing appeal, and buyers are snapping up short-haul cargo.

High freight costs are causing long-haul routes, which were originally of great strategic importance, to lose their economic value.

According to Vortexa vessel tracking data, freight volumes from the United States to Asia have fallen significantly in recent weeks as freight rates have increased by about three times.

According to reports citing sources familiar with the matter, a Japanese refiner recently purchased Alaskan crude oil from ExxonMobil, which is not typically well-suited to its processing equipment, primarily due to the shorter shipping distance.

Competition for supply in the European market is equally fierce. While Brent futures briefly approached $110 a barrel this week, physical Dated Brent prices in Europe have climbed above $131, reflecting strong demand from buyers for short-haul shipments.

Saudi Arabia's decision to halt next month's contracted shipments to European buyers has further exacerbated the sourcing pressures on local refiners.

In more distant markets, sales of Angolan crude oil, typically transported thousands of miles by ocean to China, have also slumped. Sumit Ritolia, senior manager of modeling at analytics firm Kpler, stated:

Current freight rates may be self-correcting in the long run, eventually closing arbitrage opportunities and reducing demand for the most expensive offshore crude oil.

Two driving forces: the impact of war and the century-long gamble of South Korean tycoons

There are two core forces behind the soaring shipping costs.

One factor is the ripple effect of the US-Iran conflict. Tankers transshipping cargo near the Strait of Hormuz are occupying more ships and taking longer, while a large number of tankers are circumnavigating Africa to the Mediterranean to pick up cargo. Asian buyers are also filling the Middle East gap with alternative supplies from the Americas. These factors have collectively lengthened the effective transport distance of tankers worldwide and driven up overall freight rates.

The second story involves a low-profile South Korean businessman's astounding strategy. As reported by Wall Street Insights , prior to the US and Israel's attacks on Iran, South Korean shipping tycoon Ga-Hyun Chung had quietly invested approximately $7 billion to build the world's largest fleet of owned oil tankers—a bet considered one of the largest single-market gambles in maritime history.

Chung's family business, Sinokor, was founded by his father in 1989 and initially focused on container shipping between China and South Korea. According to Eirini Diamantara of the Greek brokerage firm Xclusiv Shipbrokers, Sinokor currently owns over 160 tankers, nearly half of which are VLCCs.

According to Kpler data, Chung had pre-deployed VLCCs near the Strait of Hormuz before the conflict broke out. In the early stages of the war, they were leased as floating oil storage facilities, and some ships subsequently engaged in short-haul transshipment, transferring crude oil to ports outside the strait and then having other ships transport it to Asia.

In addition, Sinokor's derivatives trading team simultaneously operates paper contracts linked to the freight market, further profiting from rising freight rates.

High-stakes gamble logic and historical risks

Industry insiders believe that the core logic behind Chung's strategy is that if a single player controls a sufficiently large fleet, it can influence freight rates by controlling the supply of shipping capacity .

The real-world conditions supporting this logic include: no major shipowners in Greece, Northern Europe, and Asia have achieved market dominance; a large influx of tankers into the "shadow fleet" transporting sanctioned crude oil has led to a continuous contraction in mainstream available shipping capacity; and the opaque secondhand ship market makes it difficult for regulators to track and intervene.

Initially, industry veterans were shocked by the bet but not worried. They were even happy to sell ships to this "industry upstart," believing that the cyclical fluctuations in the tanker market would eventually cost him dearly.

History has indeed provided a warning. In the 2000s, Taiwanese tycoon Nobu Su made a fortune by controlling a large number of bulk carriers. He then tried to replicate the same strategy in the tanker market, but failed in the 2008 global economic crisis.

Currently, Chung's gamble is working, but whether tanker freight rates can remain at such high levels still depends on the course of the war, the speed of adjustments in the global energy trade landscape, and the eventual rebalancing of market supply and demand.

Risk Warning and DisclaimerInvesting involves risk; please exercise caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Any investment decisions made based on this information are at your own risk.