Freight rates soar as China revs up oil reserves

Oil shipping costs have been unusually high in the recent months as oil tankers take too long to unload at China’s ports. China is beefing up oil reserves, and increasing its oil investment could be a strategy towards gaining the upper hand in political bargaining.

According to Dynacom Tankers Management Limited’s Chartering Manager Ody Valatsas, their huge oil tankers with load capacities of up to 2 million oil barrels now take ten days to finish unloading.  In the past, the super tankers can unload in less than three days.  Nikos Varvaropoulos of Optima Shipbrokers Limited also reported that unloading delays are two days at most, but for the past few months, it has stretched to nine days.

The world’s biggest oil consumer is revving up its reserve capacity. To make up for its declining oil imports from Iran, it has boosted imports from other crude sources. Oil purchases from Venezuela increased more than twofold versus the past year’s volume. Imports from Angola also went up by 25 percent. Reports from the customs department reveal that China’s oil imports reached a high of 23.5 million MT per month during the first three months of 2012.

China raised its targeted oil emergency supply to 271.8 million barrels according to China National Petroleum Corporation (CNPC). To accommodate this supply, it has decided anew to invest in oil storage hubs. There are eight new ones under construction and China hopes to complete them by 2013.

HSBC Shipping Services Limited’s Director of Research, Nigel Prentis said “There has been increased chartering activity as the Chinese have sourced alternative supplies to Iran and filled their strategic reserves, so the Chinese have logically overwhelmed their ability to discharge into their ports.”  He explained that “This is restricting supply of ships available for new cargoes in the Persian Gulf and all helps to lever up freight rates.”

Based on Worldscale, the uniform freight rating system used by the tanker industry, freight costs covering the Middle East to the Asian route jumped to almost 30 percent starting 2012. Moreover, information from Poten & Partners reveals that freight income from this route alone rose by 90 percent or, a whopping $39,532 per day.  The situation, though temporary, may spur investing in oil tanker fleets that could augment those already using the route.

Varvaropoulos stated that delays at China’s ports point to the fact that the country is indeed a huge market for crude oil, and that tanker owners benefit from the current situation as they are able to command higher than normal freight rates. He further disclosed that while China is apparently a catalyst for growth, the current scenario is still regarded as out of the ordinary.

By: Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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