Crude prices jumped over 3 percent in early trading on June 13 following attacks on two tankers in the Gulf of Oman – coming a month after four tankers were sabotaged in the same region.
Fears of a wider conflict between the U.S. and Iran and a potential blockage of the Strait of Hormuz are intensifying. That fear alone could have implications for global crude oil transportation. Just as the threat of U.S. tariffs on Chinese containerized imports caused a surge of pre-emptive volumes in the second half of last year, the threat of the Strait of Hormuz being closed could cause crude importers to scramble to lock in cargoes now.
The fully laden product tanker Front Altair, owned by Frontline (NYSE: FRO), and the chemical tanker Kokuka Courageous, operated by Bernhard Schulte, were attacked in the Gulf of Oman, 70 nautical miles off the coast of Fujairah, UAE. On May 12, four tankers sustained damage from attacks off Fujairah.
Frontline’s stock, which is listed in Oslo as well as in New York, rose 9 percent in early trading, implying that investors foresee a short-term positive effect on tanker rates.
According to Clarksons Platou Securities analyst Frode Mørkedal, “We suspect that the narrative is that a conflict in the region, and possible closure of the Strait of Hormuz, would be good for tanker rates in the short-term as buyers scramble for cargoes. In the medium-term, it would be negative as a closure could shut in one-fifth of world oil supply. Precisely because of that, we doubt it would be a long-lasting affair.”
In response to questions from FreightWaves on the potential effects of the attacks, Deutsche Bank analyst Amit Mehrotra, replied, “Rightfully or wrongfully, tanker stocks correlate to oil prices, so it is not surprising to see an underlying bid today, given what oil is doing.
“I don’t see much in the way of structural implications from today – assuming it’s a one-off event,” he said. If tanker stocks in general go up in New York trading, “today’s session from a stock and price action standpoint will just be a reversal from what happened yesterday – i.e. tanker stocks taking a hit because the overall oil complex was weak.”
Mehrotra added, “Today does show you, however, how global developments can have an outsized impact on the shipping sector.”
During a quarterly conference call with analysts on May 16 (in the wake of the first tanker attacks), Frontline chief executive officer Robert Macleod was asked about the possible impact on tanker markets and rates.
He responded, “What I expect is that with concerns around the Middle East, if I was a refiner anywhere in the world, I would be looking for alternative supply. So, I think demand around West Africa will increase, and out of the U.S. Gulf.
“People will be looking for alternatives, and for the tanker market, most of the refineries are in Asia, so that would be positive for ton-miles [tanker demand is measured in volume multiplied by distance],” said Macleod, adding, “I wouldn’t be surprised if this is what turns things around.”
But looking forward, if there is a military conflict in the Middle East, it could be highly negative for tanker rates. As JP Morgan shipping analyst Noah Parquette warned in a note to clients on June 13, “There may be an effective decrease in supply as ships trade less efficiently [a positive for rates], especially in the near-term. However, if volumes through the Strait of Hormuz are disrupted due to a conflict, this would be a significant loss of demand for tankers.”