Shipping invoice on Saudi, China oil route hits highest level in 2.5 years

Shipping costs for oil from Saudi Arabia to China just jumped to $87,000 a day, the highest rate in two and a half years, according to Bloomberg.

That’s the current price tag for moving 2 million barrels on one of the world’s biggest tankers. It’s higher than rates seen earlier this year during the Middle East clashes, and it’s ripping through freight markets right now.

Shipowners are pointing to two things. First, there’s a growing divide in the tanker fleet, vessels that comply with Western sanctions and those that don’t.

Second, there’s straight-up rising demand. More barrels need to move, and fewer clean ships are available to carry them. That tight supply is pushing rates through the ceiling.

Tankers fill up as production surges in Americas and Guyana

Lars Barstad, the CEO of Frontline Plc, said last week that things are “quite exciting” for compliant crude exports and he’s seeing a lift in production from across the Americas. Lars said, “If you look at expectations for production, it looks constructive.”

He added that long-haul shipments are getting stronger, which is helping drive prices higher. That demand is piling pressure on the limited number of non-sanctioned tankers left on the water.

The oil’s coming from everywhere. Brazil pushed production toward 4 million barrels a day in July, the highest ever reported. In Alberta, Canada hit a record for oil output in the same month.

And Guyana, which didn’t even have a real presence in oil just a few years ago, is on track to pump close to 1 million barrels a day by October.

The supply flood hasn’t really hit near-term prices, but the pressure is showing up in Brent-Dubai spreads. Brent swaps are trading at a wide discount to the Dubai benchmark as barrels from the Atlantic Basin keep piling up. Whether that changes spot prices is unclear, but the tanker market is clearly heating up.

Ukrainian strikes and Fed meeting keep oil traders on edge

Oil prices held steady on Tuesday, with Brent crude down 20 cents to $67.24 per barrel and WTI falling 19 cents to $63.11. On Monday, Brent closed at $67.44 and WTI at $63.30.

At the same time, the war in Ukraine just dragged the market into deeper uncertainty. Ukrainian drones targeted Russian refineries again, knocking out an estimated 300,000 barrels a day of refining capacity in August and September, according to Goldman Sachs.

JP Morgan analysts said, “An attack on an export terminal like Primorsk is aimed more at limiting Russia’s ability to sell its oil abroad, affecting export markets.” They also said these attacks are a sign that there’s now “a growing willingness to disrupt international oil markets,” which could push prices higher.

Still, production from Russia is expected to hold relatively steady. China and India aren’t turning away those barrels. Goldman said that even with more sanctions talk in the air, “Asian buyers continue to signal willingness to import Russian crude,” so only modest declines are expected.

Scott Bessent, the U.S. Treasury Secretary, said on Monday that Trump’s administration isn’t planning to put extra tariffs on Chinese imports to force Beijing to cut Russian oil purchases. Bessent said that unless Europe hits China and India with duties of their own, Washington won’t act alone.

Markets are also watching the Federal Reserve, with its September 16–17 meeting expected to bring an interest rate cut. Lower rates usually mean higher fuel demand, but there’s hesitation because of weak signs in the overall U.S. economy.

Meanwhile, U.S. stockpiles are shrinking again. Crude inventories probably fell by 6.4 million barrels last week, based on estimates from Walt Chancellor, energy strategist at Macquarie Group. That follows a 3.9 million barrel build the week before. Traders are waiting for official numbers due Wednesday at 1430 GMT.

A Reuters poll on Monday showed that analysts expected both crude and gasoline stockpiles to drop, while distillate inventories likely increased.

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