A sharp increase in Saudi Arabian crude shipments through the Strait of Hormuz is putting ship-to-ship transfer operations in the Gulf of Oman under growing pressure, tightening the supply of supertankers and pushing freight rates to unprecedented levels.
The shift follows the September 13 attack on Saudi Arabia’s East-West Pipeline, which disrupted crude exports from the Red Sea port of Yanbu. With those flows affected, Saudi Arabia has redirected a much larger share of its oil through Hormuz, adding to volumes already being shipped by other Gulf producers.
Saudi Aramco has sold more than 60 million barrels of crude for ship-to-ship transfers off Sohar, Oman, during September and October, according to trading sources and analysts.
Data from Kpler indicates that Saudi crude shipments through Hormuz could average about 3.6 million barrels per day this month, compared with roughly 900,000 bpd in August.
That increase of almost 3 million barrels per day is creating substantial additional demand for very large crude carriers. Kpler analyst Panagiotis Krontiras estimates that moving the extra volumes would require between 36 and 40 additional VLCCs, with each vessel capable of carrying around 2 million barrels.
Anoop Singh, global shipping research head at commodity broker Oil Brokerage, estimates that the number of additional VLCCs needed to handle the flows has reached about 40 this month, compared with 24 in August.
The surge has also pushed tanker earnings sharply higher. The daily time-charter rate for a VLCC carrying Middle Eastern crude to China reached a record $1.27 million on Monday, according to LSEG data.
STS operations face growing congestion
Saudi Arabia’s increased use of ship-to-ship transfers is occurring alongside rising volumes from other Gulf exporters, including Iraq and the United Arab Emirates. The additional activity is creating bottlenecks for tugboats, crews and other services required to complete transfers outside the Strait of Hormuz.
Before the conflict disrupted regional oil logistics, buyers generally lifted much of the crude directly from Gulf producers. The current shipping pattern has created a much heavier reliance on STS operations.
Vortexa analysts said crude loaded onto VLCCs from ports west of Hormuz has remained at around 6 million barrels per day since the end of August. That is equivalent to roughly three pairs of VLCCs beginning STS operations each day.
The congestion has also extended the time needed to complete a transfer. Vortexa analyst Emma Li said an STS operation now takes close to 10 days, compared with around five to seven days previously.
With vessels spending longer waiting and completing transfers, Chinese buyers are exploring other options. These include conducting transfers off India’s western coast and Malaysia, as well as arranging direct deliveries to refineries.
One example is the Bahri-operated VLCC Gold Shine, which loaded about 2 million barrels of Saudi crude at Ras Tanura earlier this week and was sailing toward Quanzhou in eastern China, according to Kpler and LSEG data. Refineries operated by Sinochem and Fujian Refining are located in the area, with the latter partly owned by Saudi Aramco.
Elsewhere, South Korean refiner S-Oil is arranging for two VLCCs to conduct ship-to-ship transfers off Vadinar on India’s western coast, according to a trader familiar with the Middle East crude market.
Malaysia is also seeing increased activity. A tanker owner monitoring the Malacca Strait reported a rise in crude transfers around Linggi, a major regional transshipment hub.
For some cargoes, the economics are also shifting. A Singapore-based crude tanker broker said transferring oil from supertankers into smaller vessels for onward delivery to North Asia can be cheaper than sending the cargo directly aboard large tankers.
The combination of redirected Saudi exports, higher Gulf crude volumes and prolonged STS operations is therefore placing unusual pressure on tanker availability, while forcing traders and refiners to consider alternative routes and transfer locations.
