VLCC Earnings Hit a Record $1.27 Million a Day as Saudi Crude Jams Ship-to-Ship Transfers off Oman

Saudi Arabia is sending crude back through the Strait of Hormuz faster than the workaround can absorb it. The ship-to-ship transfer operations in the Gulf of Oman, where shuttle tankers hand their cargoes to long-haul supertankers outside the strait, are running at capacity. On Monday the daily earnings of a VLCC hauling Middle East crude to China hit a record $1.27 million.

The trigger was the September 13 attack on Saudi Aramco's East-West pipeline, which halted loadings at Yanbu on the Red Sea. With its western outlet shut, Aramco has sold more than 60 million barrels for transfer off Sohar, Oman, across September and October. Saudi exports through Hormuz are on course for about 3.6 million barrels a day this month. In August they were near 900,000.

The Queue Is Now the Chokepoint

For months Gulf producers have kept crude moving by running it through the strait on their own tankers, then transferring it to other ships once outside. It works. It is also slow, and every barrel handled this way ties up two ships instead of one.

Crude loaded on VLCCs west of Hormuz has been passing through these transfers at roughly 6 million barrels a day since late August; that's about three pairs of VLCCs starting an operation every day. Each operation now takes close to 10 days, up from five to seven before the queues built. The pinch point has moved from the strait to the anchorage (tugs, fenders, mooring crews and waiting time).

A rough count shows the scale. Three pairs a day at 10 days each means about 30 transfers under way at any moment, which keeps some 60 supertankers occupied in the Gulf of Oman out of a global fleet of roughly 900. The slower turnaround on its own soaks up about two dozen VLCCs compared with the old pace.

Estimates of the extra tonnage differ, but they point the same way. One analyst puts the nearly 3 million barrel a day rise in Saudi flows at 36 to 40 additional VLCCs. Another counts 15 more ships for the shuttle runs alone on a 2 million barrel a day uplift, plus about 20 VLCCs effectively stranded in the Mediterranean after positioning for Yanbu cargoes that no longer load.

Moving the same volume of oil now takes about 40 more VLCCs than it did before the war. In August the figure was 24.

Buyers Look for Other Transfer Points

The congestion is pushing cargoes elsewhere. Chinese buyers have asked sellers to arrange transfers off India's west coast or Malaysia, or to deliver straight to their refineries. The Bahri-operated VLCC Gold Shine, which loaded 2 million barrels of Saudi crude at Ras Tanura this week, was heading directly for Quanzhou in eastern China. South Korea's S-Oil, majority-owned by Aramco, is sending two VLCCs to transfer cargo off Vadinar in Gujarat. Transfers off Linggi, Malaysia's hub in the Malacca Strait, have picked up as well.

At least one broker reckons it can be cheaper to discharge a supertanker into smaller ships for the last leg to North Asia than to send the VLCC all the way. At more than $1 million a day per ship, an extra handling step that frees the big tanker sooner can pay for itself.

What Would Release the Ships

Two things decide how long this lasts. The first is Yanbu. Saudi Arabia is working to restore partial flows on the East-West line; once Red Sea loadings restart, shuttle demand falls away and the ships waiting in the Mediterranean go back to work. That's about 35 VLCCs of demand that could disappear quickly.

The second is the strait itself. Only 17 commodity vessels crossed Hormuz over the weekend of September 19 and 20, down from 37 the weekend before, and attacks on merchant ships continued through the week. A real reopening would make the shuttle-and-transfer system unnecessary, and the tankers tied up in it would hit the spot market together.

Until one of those happens, freight keeps taking a bigger share of the delivered price of every Gulf barrel.