Goldman Sachs sees crude freight rates surge to $20 per barrel

Investing.com -- Global average crude freight rates have climbed above $20 per barrel from $3 per barrel a year ago, according to Goldman Sachs analysis released Wednesday. The increase initially started in the very large crude carrier segment and on Middle Eastern routes before spreading to all major crude trading routes, particularly affecting long-haul voyages.

The bank identified five main drivers behind the $20 per barrel year-over-year surge in the average global crude freight rate. A war risk premium in Hormuz accounts for $7 per barrel, representing one-third of the increase in the global average crude freight rate. Ship-to-ship transfers outside the Persian Gulf that tie up tankers for longer add $4 per barrel, while higher maritime fuel prices contribute another $4 per barrel. Inefficient tanker allocation and increased tanker redirections account for $3 per barrel, and the blockage of the Iranian fleet adds $2 per barrel by boosting demand for non-sanctioned crude tankers.

While global freight rates have declined slightly in recent days, likely due to an easing in the risk premium, the global average remains seven times higher than a year ago. Goldman Sachs expects these factors to continue supporting global freight rates as long as the conflict in the Middle East persists.

The bank noted that high freight rates may reduce refiners' overall demand for crude or shift it towards more closely located crude suppliers. Most traded crude benchmarks do not directly include transportation costs in their prices, as they are priced on a free-on-board basis.

Goldman Sachs sees high freight rates widening crude price differentials by changing crude trading patterns and supporting refined product prices while suppressing refiners' net margins. Crude producers with greater dependence on distant buyers may need to discount their crude more heavily to retain demand from refiners facing high transportation costs. Refiners with greater dependence on imported crude from distant suppliers would need to either pass higher freight costs on to final consumers or accept lower net refinery margins.

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