Booming economic growth in China, a recovering U.S. economy and tougher environmental laws on oil tankers have sent costs soaring for transporting crude oil, the lifeblood of world trade, analysts and brokers said on Wednesday.
Freight prices on some of the busiest global routes for supertankers have hit 30-year highs over the last week -- piling on further costs for oil consumers already hit by a crude price surge.
Since October last year freight costs have quadrupled on a typical journey from West Africa or the North Sea to the United States - a fivefold increase from the tanker trade's dog days of 2002 when the September 11 attacks on the United States exacerbated the global economic downturn.
Daily charter rates for a typical supertanker across the Atlantic now exceed $140,000 a day, up from about $20,000 in October.
China, the world's fastest growing economy, with a GDP growth at a whopping 9.9 percent in the fourth quarter of 2003, has been the engine of the oil freight spike.
Rampant Chinese demand for raw materials such as iron ore and coal, has already sent prices rocketing for dry-bulk freight, a separate sector to "wet" trade in oil freight.
"A resurgence in the economic cycle of western economies is coming at the same time as a structural growth in China that is pulling in a record amount of oil. Both are having an impact on shipping markets," said Louisa Follis, an analyst with Simpson Spence and Young (SSY) shipping brokers in London.
Chinese crude oil imports in 2003 rose 30 percent over the previous year, while refined products rose 40 percent, said Follis.
The growing Asian demand for oil has meant that supertankers have been more heavily employed on long-haul routes. And it has meant that U.S. refiners are finding their import costs rising inexorably as they compete with China for vessels.
"In terms of the ton-mile ratio on journeys especially from West Africa and Europe, ships are being tied up for much longer voyages," Follis said.
Environmental regulations
Stricter environmental regulation of oil tankers following a string of ecological disasters have reduced the number of tankers available and pushed up freight costs.
Mounting congestion in the Turkish Straits has also tied up larger tankers bringing larger volumes of Russian crude to world markets.
The rate of big tankers coming on the market, with only up to 1.3 million tons deadweight, or seven supertankers last year according to SSY figures has not been able to keep up with long-haul demand, with the inevitable impact on other Very Large Crude Carrier (VLCC), 260,000 tonne, and Suezmax, 130,000 tonne, routes from West Africa and the North Sea.
"There has been solid growth in the chartering of VLCCs by China and India since the peaks of 2000 and recently good demand for VLCC tonnage in the Atlantic basin," said Kevin Rose, a director with E.A. Gibson tanker brokers in London, who put some of the blistering price rise down to long-term changes in patterns of oil trade as well as temporary seasonal factors.
In addition, the recent massive returns available for the world's trillion dollar ship industry in hauling dry bulk goods and materials has seen the flight of combination freight carriers or OBOs as they are known, ships built to alternate between "wet" and "dry" trade, to the dry sector. Analysts say that around 60 percent of available OBO tonnage has switched to dry markets.
"These factors have come all at once and are conspiring to push prices higher," said Follis.
300 percent rate rise
Oil refiners and tanker brokers are now watching to see if the world's benchmark routes, from Gulf ports to Asia and west to the United States and Europe similarly manage to break records. They are only a stone's throw away and some experts say it could still happen despite the seasonal oil demand downturn in the second quarter.
It currently costs about $1.40 to ship a barrel of oil from the Gulf to Singapore -- over 300 percent higher than last summer. Movements of oil from Gulf producers, OPEC heavyweights like Saudi Arabia, account for around 60 percent of total seaborne oil trade, two-thirds of which winds its way to Asian refiners.
OPEC said on Wednesday that its 10-member countries, excluding Iraq were leaking an extra 1.29 million bpd over a 24.5 million bpd ceiling agreed in November.
Shipping analysts and brokers said the market would undoubtedly soften if OPEC cut production sharply but with sky-high oil prices the odds were still stacked against it cutting supplies back significantly.
They also said that booming Chinese and strong Asian demand in general could offset the seasonal turn down and even a token OPEC supply cut.
"Fundamentals are very firm in 2004. The extra tonnage coming into the market will be absorbed in most sectors," said Follis.