Rates for the transportation of oil via Very Large Crude Carriers (VLCCs) from the Middle East to China have surged to a notable $66,600 per day, marking a three-month high. This escalation is attributed to a spike in insurance costs stemming from recent attacks by the Houthi rebels on vessels navigating the Red Sea.
Data from Clarksons, as cited by Freight Waves, indicates that in the fourth quarter of the previous year, VLCC rates averaged approximately $21,000 per day, a significant increase from the $8,700 per day observed in the third quarter of the same year.
Bank of America forecasts that for March, VLCC day rates are likely to hover between $40,000 and $50,000, with a projected drop to $35,000-$40,000 in the second quarter.
The last time such a drastic spike in oil shipping costs occurred was in 2019, triggered by geopolitical tensions in the Middle East and U.S. sanctions on a Chinese tanker owner. During that period, VLCC day rates skyrocketed from $25,000 to over $150,000, persisting for six months.
Day Rates for Large Crude Carriers Reach Three-Month High Amid Red Sea Attacks (Credits: Oil Price)
Since mid-December, the volume of crude oil tankers navigating the Red Sea has plummeted by up to 60%, indicative of the heightened risks associated with the region.
Despite the relatively muted response of oil prices to the attacks on Red Sea vessels by the Iran-backed Houthis, insurance companies have reacted by either elevating day rates or imposing exclusions on war risk claims for ships venturing into the troubled waters.
A recent incident involved an assault on the UK-registered vessel, the Rubymar, prompting its crew to abandon the ship, now endangered of sinking, as reported by the Houthis. The Rubymar was en route to Bulgaria from the United Arab Emirates when the attack occurred.
In response to the escalating attacks, a spokesperson for British Prime Minister Rishi Sunak denounced the actions of the Houthis, affirming the UK’s commitment to safeguarding commercial shipping in the region. The statement also reiterated the deployment of HMS Diamond and HMS Richmond to patrol the Red Sea, underscoring the resolve to uphold freedom of navigation and protect lives at sea.
