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VLCC Freight May Ease From Records, But Stay Above Pre-War Levels, Kpler Says

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Very large crude carriers freight may retreat from its $32 per barrel peak, or about $1.2 million a day, but Strait of Hormuz constraints should keep rates well above pre-war levels, Kpler strategists said in a Tuesday note.

Record VLCC freight has pushed transportation costs sharply higher, but resilient Asian refining margins have allowed refiners to absorb the added expense, Kpler said.

Freight from the Mideast Gulf to Asia reached 21% of Basrah Medium's gross product value at the end of last week, versus 4% over the six months before February's war. Basrah Medium margins fell to $49/bbl from $62/bbl last week.

Lower Sidi Kerir flows will reduce VLCC ton-mile demand, but rising Saudi East Coast exports could offset some of the decline. A Sidi Kerir-to-Ulsan voyage generates 58% fewer ton-miles than a Ras Tanura-to-Ulsan voyage.

Saudi Arabia has increased East Coast loadings after attacks severed the East-West pipeline, with six VLCCs loading at Ras Tanura as of Sept. 21. Kpler said limited Gulf of Oman ship-to-ship capacity and higher operational risks should constrain vessel availability.

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Update: UK Reportedly Weighs Providing Military Support to Saudi Arabia Against Houthi Attack

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Oil & Energy

Higher Hormuz Oil Flows May Offset Supply Risks From Russia-Ukraine Strikes, Macquarie Says

Russia-Ukraine energy strikes show little sign of easing, but rising Hormuz oil flows could ease supply pressure and slow inventory draws, Macquarie energy strategist Walt Chancellor said in a Monday note.US President Donald Trump said Russia and Ukraine had agreed last Monday to stop attacking energy targets, briefly sending crude prices lower. Chancellor said subsequent strikes, including attacks near Moscow, offered little evidence of a lasting agreement.Chancellor said Ukraine's attacks on energy infrastructure highlight the strategic value of such assets, pointing to the Caspian Pipeline Consortium terminal in Novorossiysk. The terminal handles mostly Kazakh crude, while US companies, particularly Chevron (CVX), have invested heavily in Kazakhstan's upstream sector.Markets should not dismiss US statements on Middle East oil supplies as dark transits limit visibility into regional flows, Chancellor said. Hormuz shipments have risen above 8.5 million barrels per day since Aug. 30 and may have reached 10 million b/d by Sept. 18.He said additional flows could eventually halt global inventory draws, with 2 million b/d from Fujairah and another 2 million b/d to 4 million b/d potentially moving through the Red Sea.The higher oil flows also come with tighter shipping conditions, as Hormuz and Red Sea routes, longer voyages, US exports, Panama restrictions, and sanctions lift VLCC rates and vessel values while widening regional oil price differences, Chancellor said.

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Oil & Energy

Oil Update: Crude Tumbles as Trump Signals Iran Talks, Saudi Exports Recover

Crude futures tumbled in after-hours trading on Monday, as markets weighed the prospect of peace talks between the US and Iran amid signs that Saudi Arabia was recovering some crude exports despite the widening Middle East conflict.Front-month West Texas Intermediate futures tumbled 4.8% to $95.48 per barrel, while Brent futures fell 3.6% to $100.16/bbl. Dubai 1st Line Futures were down 3.1% to $90.92/bbl.ING strategists said that the pullback comes despite ongoing geopolitical risks and continued concerns over global oil supply disruptions.President Trump reportedly halted strikes against Yemen's Houthis for now, while indicating that he was open to meeting Iranian President Masoud Pezeshkian during the UN General Assembly.On the supply front, Saudi Aramco loaded about 14 million barrels of crude on seven supertankers inside the Mideast Gulf on Sunday, according to media reports. The Gulf state has reportedly moved about 2.9 million barrels per day of crude through the Hormuz over the past six days, up from just 700,000 b/d in August.The US Central Command also said crude and LNG flows through Hormuz have reached a six-month high over the past two weeks, with key transit lanes clear of mines.Gelber & Associates strategists said Saudi exports have recovered to above 4 million b/d in September from 2.4 million b/d in August, with flows through the Strait of Hormuz averaging 2.9 million b/d during the past six days.