Chinese oil shipping companies face U.S. sanctions, oil transportation costs rise

On September 25, 2019, the U.S. Department of the Treasury announced sanctions on Chinese entities and individuals that purchase oil from Iran. The demand from sanctioned companies to replace oil tankers has pushed freight rates from the Persian Gulf to China to rise rapidly. China’s banned oil shipping companies will have a hard time finding alternatives to oil tankers. This round of sanctions against Chinese oil companies that import Iranian crude oil is bound to further push up the freight rates of oil tankers, thus causing the cost of oil to continue to rise.
On September 25, 2019, the U.S. Department of the Treasury announced sanctions on Chinese entities and individuals that purchase oil from Iran. The sanctioned entities include Dalian COSCO Shipping Oil Products Transportation Co., Ltd., Dalian COSCO Shipping Oil Shipping Crew Ship Management Co., Ltd., in addition to Zhonghe Petroleum Co., Ltd., Xinlian Bank Co., Ltd., Kunlun Holdings Co., Ltd., and Hong Kong Kunlun Shipping Ltd. and Pegasus 88 Ltd.
Dalian COSCO Shipping Oil Products Shipping Co., Ltd. is a very large crude carrier (VLCC) operating company before the reorganization of the original COSCO and the original China Shipping. Now all VLCCs are Hong Kong single shipping companies. In the 2019 semi-annual report, Dalian COSCO Shipping The profit contribution of the oil transportation company accounts for 39% of its parent company COSCO Shipping Energy. After the sanctions, COSCO Shipping Energy issued an announcement saying: As a buyer, the company signed two shipbuilding contracts with Dalian COSCO Shipping Heavy Industry Co., Ltd., and COSCO Shipping Heavy Industry Co., Ltd. will build two 49,900-dwt product/crude oil ships for the company. The total price of the two ships is US$67.8 million (excluding tax).
Affected by U.S. sanctions, sanctioned companies are looking for replacement tankers. According to foreign media reports, at least 4 VLCCs have been booked by well-known Chinese oil companies as replacements. The company had previously booked them with COSCO Shipping Dalian Company Tanker, transporting crude oil from the Persian Gulf.
Due to the sudden incident, demand for alternative tankers has pushed freight rates from the Persian Gulf to China to rise rapidly. As of September 26, the freight rate of these alternative VLCCs has risen to (Worldscale) 76, while the estimated freight rate of 270,000 tons of VLCC from the Persian Gulf to China on the 24th is still (Worldscale) 67.
Even though freight rates are rising, these VLCC charterers are very wary of Chinese oil shipping companies due to fear of U.S. sanctions. On the one hand, shipowners are observing the impact of sanctions on tanker freight rates, and on the other hand, they are also afraid of chartering activities. It will bring the risk of sanctions for itself. Given this consideration, it will be difficult for China’s banned oil shipping companies to find alternative tankers.
It is reported that COSCO Shipping is choosing to transfer control of ships to independent entities or partners. According to shipping industry statistics, the group controls more than 40 supertankers, including 13 LR1s and 4 LR2s. Some analysts believe that if the company does this, it will need approval, which will take several weeks; before this happens, the supply of LR1 and other products will tighten, and shipping costs will also increase.
It can be seen that the United States frequently attacks China, which is not only disturbing the global economic situation, but also disturbing the crude oil and oil transportation markets. This round of sanctions against Chinese oil companies that import Iranian crude oil is bound to further promote The cost of oil continues to rise due to high tanker freight rates. </p