Would OFAC sanctions relief cool freight costs?

As of the day before yesterday, US Energy Secretary Chris Wright is understood to be considering removing sanctions on all tankers in an effort to cut soaring freight costs and reduce energy inflation in the run up to the US midterm elections. Wright stressed that these ships would be used to carry ‘legal’ oil only – presumably meaning no Iranian or Russian oil subject to sanctions. The US hopes these tankers can be used to get more oil out of the Mideast Gulf. If this does become policy, some countries will doubtless take advantage of the additional tonnage. Its impact on rates, however, will depend on how long this amnesty lasts beyond the US midterm elections.

Key VLCC routes fell heavily yesterday morning in the FFA market. TD34 November contract fell from W680 to W595; December was down from W650 to W570. Even the Calenders were sold off. Cal 2027 was down from $51/t to $46/t and 2028 dropped from $20/t to $17/t.

If flows through Hormuz remain obstructed, as they have been in the past two weeks, additional vessels released from OFAC sanctions will put downward pressure on rates in the region. Only 61 VLCCs have exited the Middle East Gulf in the past two weeks, down from 78 in the two weeks prior, according to Vortexa. If flows increase, putting additional pressure on scarce STS equipment and crew, rates would remain very strong.

This story was originally published by Breakwave Advisors. Read the full story at Breakwave Advisors →