Middle East crude exports are flowing through nonconventional routing and ship-to-ship transfers, upending traditional shipping dynamics and driving conventional freight rates sharply higher even before Chinese demand fully recovers, J.P. Morgan Securities said in a note Monday.
Because of ongoing conflicts and threats, ships are forced to take much longer routes or spend extra days doing complex transfers. This ties up ships, meaning fewer ships are available globally, which drives freight rates way up, the bank said.
Rather than waiting for a clean reopening of regional trade paths or inventory depletion to force buyers back into the market, producers such as Iraq, UAE, and Saudi Arabia are actively restoring export flows via strategic discounts and alternative offshore hubs, J.P. Morgan noted.
This shift has triggered a surge in vessel-day consumption, keeping effective tanker supply exceptionally tight despite ongoing security and transit volatilities.
Consequently, conventional freight markets have reacted with extraordinary speed.
West Africa-to-China Time Charter Equivalent rates spiked significantly to about $170,000 per day, outpacing observed volume recoveries as tankers reposition to accommodate complex logistical routes, including longer Cape detours forced by security threats near Bab al-Mandeb.
While major operators like Cosco Shipping Energy Transportation and China Merchants Energy Shipping have maintained caution around direct Hormuz transits, broader industry participation by risk-tolerant operators and state-linked shipping fleets is scaling up shuttle capacity, as per the note.
Meanwhile, China, the top crude consumer, has largely relied on existing crude inventories amid elevated oil price environments, leaving substantial room for incremental demand once aggressive restocking resumes.
"If greater Middle East supply eventually lowers oil prices enough to bring Chinese buyers back, the incremental cargoes would meet an already constrained effective fleet. We do not assume that step occurs, but China remains the cleanest additional bull case," the bank said.
With major tanker operators posting strong preliminary half-year earnings and management teams focusing heavily on fleet deployment and freight duration outlooks, market participants view the current physical setup as increasingly supportive.
J.P. Morgan analysts maintained an overweight rating for Cosco, noting that as long as Middle East cargo availability improves and shipping inefficiencies persist, the tanker-positive momentum remains intact.
Several media outlets recently reported that TotalEnergies (TTE) Chairman and CEO Patrick Pouyanne highlighted the higher costs and massive margins currently driving the market.
According to these reports, shipping a cargo of oil on a supertanker through the Strait of Hormuz now costs about $20 million, which adds roughly $10 a barrel in freight expenses.
The French energy giant which remains one of the largest traders of oil from Iraq and Qatar, noted that it has been buying Persian Gulf barrels at $50 to $60 as regional producers desperate to move supplies offer steep discounts following six months of conflict, while global benchmark Brent futures traded above $90.