High freight limits exports from the Mideast Gulf

Freight rates for crude exports from the Mideast Gulf (MEG) to Asia remain elevated amid uncertainty surrounding the US-Iran agreement. Crucially, these high rates contrast with falling crude differentials from the region, a divergence that pushed VLCC freight to 19% of the value of Murban at the end of last week. That exceeds the previous record of 17% set at the start of the conflict.

‍

Market and trading calls

• MEG-China VLCC freight: Bullish over the next 2-4 weeks. Owner caution and limited willing tonnage entering the Gulf should keep rates elevated even as Hormuz transits recover.
• Prompt Gulf crude differentials: Bearish. Freight costs have reached 19% of Murban value, the highest level on record, reducing refiners’ willingness to pay higher FOB premiums.
• Atlantic Basin VLCC freight: Constructive. Vessel repositioning toward the Gulf and continued owner reluctance to ballast west should tighten Atlantic availability.
• Owner earnings: Bullish. Owners already positioned in the Gulf retain pricing power while uncertainty persists.
• Risk to view: A sustained period of uninterrupted Hormuz transits and clear security guarantees could accelerate freight normalization.

MEG-China VLCC freight as % of Murban

Source: Kpler, Baltic Exchange, Argus Media

A lack of understanding in the Memorandum of Understanding

Following the signing of the MoU between the US and Iran last week, under which Iran agreed to allow transits through the Strait of Hormuz to resume unimpeded, the number of tankers entering and exiting the MEG climbed to 17 on 20 June, up from just two a week earlier. However, the increase came shortly before Iran announced the Strait was closed again, reinforcing uncertainty. As expected, outbound vessels account for the majority of transits so far.

‍