Freight Rate Surge in the Strait of Hormuz Lowers Middle East Oil Prices
Rising maritime transportation costs and geopolitical risks are driving producers to cut official selling prices to remain competitive in the Asian market.
Due to the US-Iran War and geopolitical tensions, freight rates in the Strait of Hormuz have increased nearly fivefold, weakening the competitiveness of Middle East oil in the Asian market and forcing producers to implement price cuts.
Changes in Freight Costs
According to Baltic Exchange data, the crude oil freight cost per ton on the TD3C route from the Persian Gulf to China rose from $45.42 on February 27, the last trading day before the war, to $229.76 at the end of September, registering an increase of approximately 406 percent.
On the TD34 route from the Gulf of Oman to China, which does not require passing through Hormuz, freight per ton also surged 3.8 times to reach $140.02 at the end of September, while the cost of TD3C passing through Hormuz at the end of September was recorded to be about 64 percent higher than TD34.
Saudi Arabia's Decision to Cut Prices
While record freight costs eroded the price advantage of Saudi oil in Asia, Saudi Arabia made an unexpected cut in its official selling prices for November, lowering the price of Arab Light oil by $3 per barrel and bringing it $5 below the Oman/Dubai benchmark price.
It was stated that Saudi Aramco is evaluating discount options of up to $9 per barrel on certain crude oil cargoes to offset freight, with this achieved discount reaching its highest level since June 2020.
Expert Assessments
Osama Rizvi, an Energy and Economics Analyst at Primary Vision Network, emphasized that geopolitical tensions, an aging tanker fleet, and limited new shipbuilding have driven up freight rates.
Michael Ryan, a Sparta freight specialist, stated that high freight rates could force sellers to cut FOB prices, otherwise they risk losing their competitive edge in the Asian market.