Brent crude fell 2.1% to $109.26 a barrel on 29 October, a day after it rose 2.7% to $112.39, as traders weighed diplomatic efforts to avert fresh US strikes on Iran2, 8. Crude tanker rates have come down further. VLCC rates from the US Gulf and West Africa are 27% and 32% below record highs set two weeks ago, Vortexa said1.
The correction is real, but it is happening inside a war market. Vortexa said freight looks to have peaked "at least in the short-term", and that "a return to pre-war levels is also still unlikely"1. The question for buyers is which costs fall first.
What fell, and by how much
The Baltic Exchange's weekly assessment, published on 25 October, shows the falls3.
| Measure | Level | Change |
|---|---|---|
| ICE Brent futures, 29 October | $109.26 | down 2.1% on the day2 |
| Brent spot, EIA series, 27 October | $123.10 | down 3.9% on the day9 |
| VLCC, US Gulf to Asia | from peak | down 27% in two weeks1 |
| VLCC, West Africa to Asia | from peak | down 32% in two weeks1 |
| TD3C, Middle East Gulf to China | WS1,208.13 | down 88 points on the week3 |
| TD22, US Gulf to China | $58.22 million a voyage | down $11.4 million on the week3 |
| LR2, TC1 Middle East Gulf to Japan | WS1075 | up 92 points on the week3 |
| Indian basket crude, 26 October | $123.72 | October average $120.465 |
Vortexa put the drop in the Atlantic to Asia VLCC basket at 18% in the week of 19 October, against 7% east of Suez10. The Gulf to India route sits east of Suez. One executive told The Economic Times that a tanker now charges $10 to $11 a barrel from the Gulf to Indian ports, against $1 to $1.5 before the war4.
Why delivered crude has barely moved
Futures are the fastest price. ICE Brent traded at $114.81 on 27 October, after touching $117, its highest since April11. It was $112.39 on 28 October and $109.26 on 29 October8, 2. Those readings come from different times of day, not like-for-like settlements.
The delivered barrel is slower. Refiners pay a physical premium executives put at about $20 a barrel above a Brent futures price of $115, plus freight of $10 to $20 a barrel depending on origin4. The Indian basket averaged $120.46 a barrel in October to 26 October, against $116.77 in September, and stood at $123.72 on 26 October5. That is a 14-year high5. The rupee cost of a dollar rose to 95.27 on 29 October from 94.82 a week earlier12.
What has not followed crude lower
Product tankers. The ships carrying diesel, jet fuel, naphtha and LPG to India are still earning record sums. The Baltic's 75kt Middle East Gulf to Japan route rose 92 points to WS1075 in the week to 25 October, a round-trip equivalent of $313,200 a day3. Scorpio Tankers said its LR2s booked the fourth quarter at an average of $181,000 a day, against $72,283 in the third quarter13. Its MRs averaged $56,000 a day, against $31,18313. Those figures cover 44% of expected LR2 revenue days, so they are preliminary13.
Retail fuel. State refiners sell in a domestic market where prices do not quickly reflect global crude4. LPG under-recovery for the three state oil marketers is around ₹62,000 crore5. ICRA expects Indian airlines to lose ₹36,000 crore to ₹38,000 crore this financial year on high jet fuel prices, against ₹28,000 crore to ₹30,000 crore a year earlier14.
Polymers. Polypropylene rose 41% year on year to ₹140 a kilogramme in September, ABS rose 20% to ₹172 and polycarbonate 16% to ₹259, Mint reported15. "Most polymers are made by large corporations, which act as price makers, so there is almost no mitigation," said Kunal Jain, managing director of Noida-based ARK Polychem15.
Congestion and politics. On 28 October, 265 dry bulk ships were waiting across 29 ports in the Arabian Gulf and Gulf of Oman, led by Fujairah with 74 and Sohar with 50. Regional waiting is 75% above last year6. Windward estimates Gulf national oil companies control about 230 tankers, tying up 15% to 20% of the global VLCC fleet at any time16. Iran's Persian Gulf Strait Authority will take "legal action" against every Sinokor vessel from 1 November, and its non-compliance list runs to 125 ships7. Lloyd's List Intelligence estimates half the tankers transiting Hormuz are now linked to Sinokor7. October set a record of 29 vessel incidents around Hormuz, the IMO says1.
That is why the research points to a floor, not a slide. War risk premia around Hormuz remain at record highs, and loading delays tie up tonnage1. Bunker costs have doubled this year with oil, which lifts the base freight rate1. Matt Wright of Kpler wrote that the market "is not simply short of ships" but "short of vessels willing and able to operate efficiently in the Middle East Gulf"4.
Owners and analysts disagree
Tanker owners still see more upside. Executives at the Maritime CEO Forum in Monaco were "broadly bullish" despite soaring asset prices, an ageing fleet and geopolitical risk, Splash247 reported17. Bahri's third-quarter net income rose tenfold to 5.1 billion riyals, or $1.4 billion18.
Analysts are more careful. Evercore ISI raised its freight forecasts and share price targets but warned that the industry's extraordinary earnings "could be approaching their peak", Splash247 reported19. UBS expects Brent near $110 a barrel to the end of the year, up from an earlier $100 forecast11. SEB's Bjarne Schieldrop said the impression is that "there is a significant risk premium in crude oil prices for the risk that the US/Israel will attack Iran in the coming weeks"11.
What to watch
Diplomacy. Turkey, Pakistan, Qatar and Saudi Arabia met Iranian officials in Tehran this week, and Iran's foreign minister said he remains open to talks20. The Maritime Executive reported that the US military is building up for possible renewed conflict after the mid-terms20. It said US diplomats have warned Gulf states to prepare for a new wave of strikes20.
Iran's Sinokor deadline on 1 November, and whether enforcement changes Hormuz transits7.
Gulf to India rates over the next two weeks. Watch TD3C and the Baltic's weekly readings for whether the East of Suez correction catches up with the Atlantic3.
Company announcements. Indian Oil reports results on 30 October5. Any refiner or fuel retailer move on crude sourcing, delivered terms or product prices would show whether the fall in futures is reaching Indian costs.