The global oil market is facing a new problem that could keep fuel prices high even if crude oil itself becomes cheaper. This time, the deficit is not only of oil, but of the ships that transport it.
The attacks on Saudi Arabia's infrastructure and the shutdown of the key “East-West“ oil pipeline have forced large quantities of crude oil to be redirected to tankers and through the Strait of Hormuz. This has increased the burden on the world's supertanker fleet and led to a sharp jump in transportation costs, reports The Wall Street Journal.
Over $1 million per day for a supertanker
According to Windward, in early September, the daily freight for a supertanker from the Persian Gulf that must pass through the Strait of Hormuz exceeded $1 million.
This means about $26 in transportation costs per barrel. Logistics itself, which usually represents a relatively small part of the final price of oil, is now becoming a significant factor for refiners and end users.
The pressure is also being felt outside the Persian Gulf. According to Clarksons Research, the average daily operating profit of a VLCC - the largest class of oil tanker - is has reached $651,107, almost double the levels before the Saudi pipeline was shut down.
Ships take longer route
The problem is compounded by the situation in the Red Sea. Due to Houthi attacks, Saudi tankers are avoiding the Bab el-Mandeb Strait, which connects the Red Sea with the Gulf of Aden.
Some of the ships are now rounding Africa via the Cape of Good Hope. This lengthens the voyage and keeps the tankers out of their normal cycle for longer. According to Windward, more than ten ships have changed their routes, and the additional cost for one trip can reach about 1 million dollars.
This creates a kind of chain reaction: longer routes mean that a ship can make fewer trips in the same period. This reduces the number of free tankers and further increases the cost of transportation.
Saudi oil pipeline is the key to easing the market
The “East–West“ is about 1,200 kilometers long and has a capacity of approximately 4-5 million barrels per day - an amount equivalent to about 4-5% of global supply. It is particularly important because it allows Saudi Arabia to transport oil to the Red Sea without relying entirely on the Strait of Hormuz.
The facility was shut down after the attack, and damage affected three pumping stations. Initial estimates for repairs ranged from a few weeks to longer.
However, the market received a more positive signal on Monday. According to analysts quoted by The Wall Street Journal, Saudi Arabia expects to restore the oil pipeline to about half its capacity within a few days. The news helped push down oil prices in Asian trading.
That doesn't mean the problem is solved. Saudi Aramco has already warned some of its European and Asian customers about delayed or canceled deliveries in September and October. The company is looking at alternatives, including transferring oil from ship to ship off the coast of Oman.
Cheaper oil does not automatically mean cheaper gasoline
This is where the broader risk to consumers lies.
The price a refinery pays for oil is not determined solely by the price of the raw material. Added to this are transportation, insurance, processing and other logistical costs.
Therefore, record-high tanker transport can keep fuel prices high even if international oil prices fall. This is the risk for the market that The Wall Street Journal explicitly points out at the moment.
The market is already showing mixed signals. Brent was trading above $100 a barrel on Monday, but prices fell from previous sessions on expectations of a partial recovery in Saudi supplies. At the same time, traffic through the Strait of Hormuz remains severely restricted – Only about a dozen cargo ships passed through it last weekend, compared to about 125 large merchant ships a day before the war.
Thus, the global oil market remains dependent not only on how much oil is produced, but also on how quickly and at what price it can be delivered.
And this makes tankers the new bottleneck in the global energy system.