The cost of transporting crude oil by ship has risen significantly since late September and is set to remain high in the near term, according to the Wall Street Journal. One of the main factors keeping the market strong is tight shipping capacity.
Tanker rates have been on the way up since September 25, when the U.S. government slapped sanctions on vessels operated by a unit of Cosco, China’s state-owned shipping giant, for allegedly handling Iranian oil. This move reduced the number of vessels available, and it came at a time when industry observers were already anticipating a slowdown in the launch of newbuild ships.
Additionally, it occurred shortly before the introduction of IMO 2020, the new international standard mandating the use of low-sulphur fuels to reduce emissions. Shipping firms have sidelined about 240 oil tankers, equivalent to 2.2% of the entire global fleet, in order to retrofit them with scrubbers that will allow them to comply with this mandate, said Norway’s Frontline Management.
As a result of tighter shipping capacity, tanker freight rates are set to average $75,000 per day in 2020, the Wall Street Journal said. “It’s still a great market, given [that] at the beginning of the year VLCCs [very large crude carriers] were making $25,000 per day,” commented Basil Karatzas, the head of New York-based Karatzas Marine Advisors & Co.