A change of plans can prove very expensive. That’s what’s happening in the tanker market, where the rerouting of Russian oil products has driven the Baltic Exchange clean index — which tracks the prices of ships that carry refined oil products such as diesel and gasoline — up almost 70 per cent since the start of February.
The European import ban on Russian fuels adds mileage to the average journey that ships take, rather than taking diesel a short hop from Russia to Europe. This effectively cuts ship capacity in an already tight market.
This has already happened in the “dirty” world of oil tankers. Banned Russian crude oil has to find buyers in India and China. Some tankers have dropped into a “shadow fleet” of ships carrying Russian crude. A price index of crude ships ended last year up 60 per cent.
The travel impact is greater for “clean” product ships. India, for instance, is unlikely to be a potential importer given it already exports diesel. Indeed, Clarksons, a provider of shipping services, expects the mileage per tonne of oil products to increase from less than 3,000 miles in 2020 to more than 3,500 miles in 2023 — up a sixth. The equivalent figure for crude oil is less than 10 per cent.
Higher rates are extremely profitable for tanker owners, which have largely fixed costs. That may help explain why companies with exposure to oil products have outperformed those with exposure to crude. Shares of US-listed Scorpio, worth $3bn, have almost quadrupled in a year, while crude-carrying Euronav is up 58 per cent.
Most importantly, capacity is constrained. New ships last decades. Amid energy transition uncertainty, precious few vessels are being ordered — only 5 per cent of the current fleet, a 30-year low, says Clarksons. That should ensure that the existing ones sail high on the waves.
