Goldman Sachs announced that the global average freight rate for crude oil has reached $20 per barrel, while this rate was only $3 per barrel last year. This rate increase initially began in the Very Large Crude Carrier (VLCC) segment and on routes from the Middle East, quickly expanding to other major crude oil trade routes, especially long-haul journeys.
Factors Influencing the Increase in Freight Rates
This bank has identified five main factors that have contributed to the $20 increase in crude oil freight rates compared to last year. The first factor is the war risk premium in the Strait of Hormuz, which adds $7 per barrel to the global rate and accounts for about one-third of this increase. Additionally, ship-to-ship transfers outside the Persian Gulf, which cause ships to be engaged for longer periods, add $4 per barrel to costs.
Other factors include rising marine fuel prices ($4), inefficient allocation of ships and increased rerouting of vessels ($3), as well as the blockade of the Iranian fleet, which increases demand for non-sanctioned oil tankers ($2).
Implications for the Oil Market
While global freight rates have slightly decreased in recent days, this rate is still seven times higher than a year ago. Goldman Sachs predicts that these factors will continue to support global freight rates as long as conflicts in the Middle East persist.
High freight rates may lead to a decrease in overall demand from refiners for crude oil or shift it to closer suppliers. Most crude oil trading benchmarks do not directly factor in transportation costs, as they are determined based on Free on Board (FOB) prices.
Goldman Sachs believes that high freight rates will expand the price differentials of crude oil and alter crude oil trading patterns while simultaneously supporting refined product prices but reducing refiners' net margins. Oil producers who are dependent on distant buyers may need to offer greater discounts on their crude oil to maintain refiners' demand.
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