Crude shipping rates top $20 a barrel as Goldman Sachs warns of upside risks
Key Facts
Goldman Sachs said in its October report that average global crude oil shipping rates exceeded $20 a barrel, compared with $3 a year earlier. Rates on Middle East routes exceeded $35 a barrel, according to the bank's estimates, cited by Asharq Al-Awsat from Reuters. The bank's analysts warned of the implications of persistently high transport costs for their oil price forecasts. "Higher freight rates for longer pose some upside risks to our Brent forecast," they said, according to OilPrice, citing Bloomberg. Most traded crude benchmarks are priced on a free-on-board basis and therefore do not directly include freight costs.
The war risk premium in the Strait of Hormuz tops the factors Goldman Sachs identified as driving the rise in shipping rates, according to the bank's analysis cited by Investing.com. The bank estimated that this premium accounted for about $7 a barrel of the year-on-year increase under analysis. It added that ship-to-ship transfers outside the Gulf contributed about $4 a barrel to the rise in rates. These operations keep tankers occupied for longer, according to the bank's explanation of their impact on shipping costs. Against the backdrop of disruption to this passage, the International Energy Agency says Saudi Arabia and the United Arab Emirates are the only countries with operational crude pipelines capable of rerouting flows to bypass the strait.
Higher marine fuel prices contribute an additional $4 a barrel to the rise in shipping rates, according to Goldman Sachs' analysis. The bank attributes another $3 a barrel to tanker imbalances and frequent rerouting. It also estimated that disruption to the Iranian fleet contributed about $2 a barrel to the increase. The bank links the impact of this disruption to increased demand for crude tankers not subject to sanctions. On fuel supply, Goldman Sachs believes a lack of progress in restoring refined product exports from the Middle East could keep the bunker fuel market tight for longer.
Pressure on very large crude carriers reached a record in early October, according to OilPrice. Their rates on the Gulf-to-East Asia voyage exceeded $1.4 million a day. The shortage of these tankers also affected the smaller Aframax and Suezmax classes, according to the website. Demand for both classes rose alongside their daily rates. The International Energy Agency had warned in its June report that "mines will have to be cleared from major shipping lanes, and supply chains will need time to return to normal."
In the oil market, Brent fell below $109 a barrel during trading on the Tuesday before Goldman Sachs' report was published, according to the Associated Press. The crude benchmark had approached $112 a barrel earlier that morning. Goldman Sachs believes a recovery in Gulf crude exports could push crude prices lower. But it warns that such a recovery could raise shipping rates if it relies on ship-to-ship transfers. The bank thus links the direction of transport costs to how exports are restored, even in a scenario in which crude prices fall as flows from the Gulf recover.
Looking ahead, Goldman Sachs' base case includes Brent falling to $90 a barrel by the end of 2026. The bank expects crude to average $80 a barrel during 2027. As for the return of shut-in production, the U.S. Energy Information Administration does not expect most of it to be restored before the first quarter of 2027. The U.S. Environmental Protection Agency cited that estimate from the administration in a letter issued on the eve of Goldman Sachs' report. The estimate puts the return of most shut-in production beyond year-end, the point targeted by the bank's first Brent price forecast.