Concerns mount over rate hangover after wartime tanker boom ends
“WE STILL see very high freight rates, but it is clear that what this situation does, primarily, is reduce supply,” warned Vortexa chief economist David Wech.
“It takes out crude supply, it takes out product supply, it takes out LPG [liquefied petroleum gas] supply, and ultimately, that will mean less demand for shipping,” he said during a presentation on the Strait of Hormuz closure on Tuesday.
“On the crude side, there is an additional aspect: oil at sea volumes are clearly down right now, Russian volumes in particular. That is freeing up vessel capacity.”
On March 12, the US Office of Foreign Assets Control suspended sanctions on Russian crude and products that were loaded as of that date and are unloaded by April 10.
The volume of oil at sea began rising in autumn 2025 due to US sanctions that caused discharge delays, buoying spot rates. According to Vortexa data, the volume of crude and condensate on the water in the week ending Sunday was back down to mid-September levels.
“Generally speaking, with this massive backwardation we have in the oil market now, nobody will keep oil at sea longer than absolutely necessary, and you can expect this freeing-up of vessels on the clean side as well,” said Wech.
Backwardation also argues for shorter hauls, a negative for tonne-mile demand.
“You will see an increased regionalisation of trade that keeps transportation as short as possible. That’s important in a backwardated market; it’s much more difficult to make arbitrage work if you have a very long-haul route,” Wech said.
War effect on crude and products flows
Vortexa’s weekly data on global seaborne crude and condensate liftings just hit its lowest level since the dataset began in 2016, a period that includes the pandemic.
Increased crude liftings in Yanbu in the Red Sea, as well as in South America’s east coast and West Africa, were far outweighed by lost volumes in the Middle East Gulf.
Only half of the lost tonne-mile demand for very large crude carriers has been replaced, said Vortexa.
Global crude and condensate liftings in the week ending Sunday totalled just 40.7m barrels per day, down 23% versus the last week of February.
“After 19 days with no meaningful flows through the Strait of Hormuz, our concerns for owners’ income are mounting,” wrote Braemar on Wednesday.
“It is difficult to see how this conflict ends. A US ceasefire is quite possible within the next few weeks but that won’t necessarily solve the problem in the Strait of Hormuz.
“The number of ballasting VLCCs relative to laden has grown by an average of 0.55% each day. This has had the effect of adding five VLCCs to the fleet each day.
“While the disruption continues, time off-hire will doubtless rise,” Braemar cautioned, adding that “VLCC rates for Atlantic liftings are already back to where they sat just before the [war].”
On the refined products front, MEG exports are down by 2.5m bpd, according to Vortexa. There was a 1.4m bpd surge of Atlantic basin products exports in the first two weeks of this month versus February, but this was 1.1m bpd short of lost MEG supplies.
“The surge in the Atlantic basin suggests there are suppliers willing to very quickly load barrels to benefit from skyrocketing crack spreads,” Wech explained.
“But there is a question of how sustainable this is. I would expect the US Gulf to see sustained higher exports, but with Rotterdam, can that be sustained or is it just a short-term storage draw? I think it could be the latter, so it’s a mixed picture.”
The reaction to the Hormuz closure in the Pacific basin was the opposite of the Atlantic: there was a decline in Pacific basin products exports of 550,000 bpd in the first two weeks of March versus February.
“There, the approach is to make absolutely sure you have the barrel when you potentially need it. China and Thailand are among the countries that have announced export bans,” said Wech.
Looking at the clean petroleum products trades globally, he said, “There will be some upsides and downsides. The biggest upside we see is much higher flows from the US Gulf to Europe.
“But generally speaking, we think it is highly unlikely that changing regional flows can in any way make up for the loss of barrels. The loss of products out of the [MEG] region is equivalent to 7% of global CPP tonne-mile demand.”
Braemar said that the “high level of disruption” to the global refining system “is so far not being accompanied with longer-haul flow rerouting. Product tanker demand is being eroded rather than reoriented.”
Rising threat from demand destruction
The price of gasoline, diesel and jet fuel would theoretically rise too high if the strait doesn’t reopen soon, leading to increased demand destruction that forces refineries to cut their runs and import less crude.
Near-term rate dynamics are different: a race for available supplies is, for now, keeping spot rates above six figures per day.
“As the scramble for non-Middle Eastern barrels continues, oil continues to move seemingly with little thought for arbitrage or freight costs,” said BRS in a report on Monday.
Signal Ocean chartering analyst Georgios Sakellariou told Lloyd’s List: “Freight does not matter in absolute terms on its own, as long as the delivered crude oil lands in a price that gives a workable refining margin.”
In some cases — such as during emergencies like the current one — short-term profit may not be the primary concern.
“If, for example, [refiners] expect a short-term spike in freight, they would accept paying up so that they would not cut refinery runs, because they would have to take into account how long it would take to recover their runs, which could be a month or longer,” Sakellariou explained.
“Or, there might be other reasons related to society, where there is increased need for fuels as soon as possible and refiners will produce, even at losses, just because there is a state mandate.”
Ultimately, end-user prices should force refiners’ hand.
“When product prices become too expensive, there will be demand destruction from the consumers’ side and refineries will cut their runs accordingly,” said Sakellariou. “The price sets the equilibrium, be it either crude or products.”
Refinery run cuts have already begun; the only question is how deep they will go.
“Singapore, Malaysia, India and China have announced that they are cutting crude processing,” said BRS. “Petrochemical producers in China, Taiwan, Japan and Korea have reduced cracker utilisation and declared force majeure on their supplies to the market. These cuts are expected to continue to spread for as long as Hormuz remains closed.”
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