The Gulf tanker crunch is turning ship pricing upside down

A 10-year-old supertanker is supposed to cost less than a new one — but not when buyers need ships now. Several very large crude carriers (VLCCs) built before 2016 have changed hands for at least USD 150 mn over the past week, above the c. 135 mn average price of a newly built vessel, the Financial Times reports.

Buyers are paying for time, not age. Vessel purchases that previously took weeks to negotiate are closing in days, because every week without a ship means missing out on record-high freight earnings. Middle East-to-Asia VLCC rates have climbed as high as USD 1.2 mn a day, meaning a vessel that can enter service immediately is a different asset from one a shipyard will deliver years from now.

Owners, meanwhile, are in no hurry to sell. Tanker values are up by a third compared to last year, and many shipowners are holding on to bank on record rates, thinning the pool of ships for sale and pushing prices higher still, brokers and owners told the FT. Those that do sell are timing the handover — like Oman’s Asyad Shipping, which is selling two 2011-built VLCCs but will keep operating them until as late as January 2027.

The price surge starts with a simple problem: moving the same barrel now often takes two ships instead of one. Gulf producers have increasingly relied on shuttle tankers to move crude through Hormuz before transferring it off Oman to another VLCC for the long-haul trip to Asia. Crude transits through Hormuz, including ship-to-ship activity in the Gulf of Oman, averaged c. 9 mn bbl / d over the seven days to 22 September, up from 2.2 mn bbl / d in late July.

For Gulf producers, buying the ship is another way of securing control over the export route. National oil companies have traditionally chartered the tonnage they need. That model gets more complicated when vessel owners demand elevated rates — or simply refuse to enter the Gulf altogether.

The UAE’s Adnoc was heading this way before the latest buying frenzy. Adnoc L&S agreed in August to buy six secondhand VLCCs and five very large gas carriers for c. USD 1.3 bn, weeks after it spent c. USD 590 mn on five VLCCs from Frontline, as Hormuz and Red Sea disruptions pushed it to charter around 15 crude tankers for shuttle runs and customer deliveries. Their rationale seems to be bringing more capacity in-house rather than relying on export infrastructure that sits in somebody else’s hands when the charter market tightens. Kuwait’s state oil company and buyers moving Iraqi crude are also among those hunting for tonnage, the FT reports.

Folk Maritime is waiting instead of buying: The PIF-owned carrier Folk Maritime did the opposite and decided to wait for newbuild and secondhand vessel prices to stabilize before adding more ships, CEO Poul Hestbaek told Asharq Business. The pause doesn’t change its plan to roughly double its six-vessel fleet over the next four years, as it targets a 15-20% share of regional trade linking the Red Sea, Gulf, Indian Ocean, Southeast Asia, and East Africa.

Producers are bidding against buyers who got into the trade early. South Korean manufacturer Sinokor built up a huge tanker position before prices reached current levels and is now one of the main operators feeding the Gulf’s ship-to-ship network, fixing vessels at elevated rates after buying dozens of ships earlier this year. Traders are moving the same way: Trafigura has launched a 14-ship VLCC venture, Volare Shipping, as commodity houses try to secure transport capacity instead of leaving freight costs to the spot market.

The outlook: Shipowners warn of a crash if a peace agreement reopens the Strait of Hormuz, and it would land as new supply arrives: the VLCC orderbook now equals 38% of the fleet on the water, up from 15% a year ago, according to Veson Nautical. Even so, freight rates would stay structurally higher than in previous years, Watson Farley & Williams’ George Macheras told the news outlet.