Saudi shipping cost to China jumps to $63 million per voyage

Summary

• Saudi crude freight from Ras Tanura to China has risen from roughly $4.5 million to nearly $63 million a trip.
• Red Sea loadings at Yanbu fell to zero after September attacks on the East-West pipeline.
• Riyadh is back to shipping through Hormuz, the route it spent months trying to bypass.

The latest

The cost of moving Saudi crude from Ras Tanura to China's Ningbo has surged to nearly $63 million a voyage, from around $4.5 million, Societe Generale's head of commodities research Michael Haigh told The Wall Street Journal. After months of building routes around the Strait of Hormuz, the kingdom is loading more barrels at its Gulf terminal and shuttling them straight through the chokepoint again.

Details

• The workaround: Saudi Aramco is loading additional crude at Ras Tanura, sending it through Hormuz, then transferring it to other ships off the Omani coast near Sohar for delivery to Asian buyers, people familiar with the matter told the Journal. Asia is the kingdom's most important oil market.
• The volumes: Around 2.4 million barrels a day of Saudi crude and condensate moved through Hormuz over the past two weeks, according to ship tracker Kpler. That matches levels last seen in early July, before Houthi militants announced a maritime blockade of Saudi Arabia.
• The recovery curve: Four-week average daily Saudi loadings from inside the Persian Gulf climbed above 2 million barrels last week, data provider Vortexa said, against virtually zero through most of June and under 1 million barrels a day in July.
• The Red Sea gap: Loadings from the Yanbu terminals on the Red Sea have fallen to zero since attacks on the East-West pipeline earlier in September, according to Vortexa, removing the alternative outlet Riyadh leaned on when Iranian attacks choked the Hormuz route.
• The pipeline test: Saudi Arabia began running tests on the East-West pipeline on Tuesday, a step toward restoring flows. The news pushed oil lower, with Brent crude futures falling about 2% to around $98. No timetable for a full restart was announced.
• The shipbroker view: Richard Matthews, director of consulting and research at shipbroker E.A. Gibson, said Saudi Arabia is "definitely" loading more crude out of Ras Tanura and shuttling it through. The kingdom avoided this before because it had other options, he said, and those options no longer exist.
• The fleet squeeze: Demand for vessels to run the shuttle service has risen so sharply that supertankers around 20 years old are being pulled back into service, Matthews said. The workarounds are tying up tankers across the Gulf and pushing freight rates higher.
• The regional race: Producers from the UAE to Iraq are building alternative export routes of their own, the Journal reported. In Saudi Arabia's case, the detours have not sustainably cleared the blockages that have left the kingdom's oil production at a multidecade low.
• Qatar pushes back: Energy minister Saad Sherida Al-Kaabi, speaking at the Qatar Economic Forum in New York, rejected suggestions that new pipelines could soon render Hormuz irrelevant, saying the waterway carries trade in all products, not only oil and gas, for every country along it.

Background

Before the war, most Saudi exports went through Hormuz. As Iranian attacks squeezed the route, Riyadh pushed millions of barrels through the East-West Pipeline to Yanbu on the Red Sea, then rerouted some cargoes through Egypt via Suez and Sumed once Houthi attacks escalated in July.

Between the lines

Every bypass Riyadh built has now closed or narrowed: Yanbu is at zero, the Egyptian reroute followed the July escalation, and the pipeline is only in testing. That leaves the shuttle through Hormuz as the remaining option, which explains both the return to July-level volumes and a freight bill roughly fourteen times its earlier cost.

What's next

Watch whether East-West pipeline tests convert into restored Yanbu loadings, whether Hormuz flows hold above 2.4 million barrels a day, and whether Brent holds near $98 if the pipeline returns.

Source: The Wall Street Journal