Oil tanker costs climb as Russia ties up system with longer routes
Oil tanker costs climb as Russia ties up system with longer routes
Russia’s invasion of Ukraine has had big impacts on world trade, from wheat to oil.
After the European Union levied sanctions on Russian crude oil in December and on refined oil products in February, Russia now sends more of its oil a lot farther away than it used to. And that’s causing problems for the shipment of energy commodities across the water.
If you thought oil prices were volatile, try shipping. Nicholas Watt, head of freight pricing at Argus Media, likens its swings to surge pricing for Uber rides.
“If you’re leaving a football game or a concert, you’ve got a lot of people that want to take an Uber, and you’ll notice, ‘Oh my, you know, it’s three times higher the cost than I would normally expect,'” he said.
But you still have to get home. “So you pay it,” Watt said. “And it’s the same sort of thing with tankers.”
Demand for tanker services has surged as sanctions forced Russia to sell a whole lot less oil to Europe and more to other parts of the world.
“That flow is now largely going to India or to China, so that’s a longer-haul route,” Watt said.
As a result, the tankers that move it are tied up longer, and that’s affecting the entire global market for those vessels. Over the last two months, the average cost that producers pay to ship fuel and petroleum has more than doubled.
We can’t count on a lot of new tankers to ease the crunch, according to Dylan Simpson, freight analyst at Vortexa.
“Until about 2025, there’s going to be decreasing growth in the fleet size, globally,” he said.
Builders are busy producing other kinds of ships, per Jason Miller, interim chair of Michigan State University’s department of supply chain management.
“So new capacity under construction in the ocean space, it’s tied up right now in building container ships, as well as liquefied natural gas ships,” he said.
So for now, it will be older tankers moving Russian fuel those longer distances. And that’ll create additional climate impacts for a sector that Miller said is already one of the biggest contributors to global greenhouse gas emissions.
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