Could a shortage of tankers keep oil prices high?

Luke Wilson (0:00)

Oil prices are falling, but could the rising cost of tankers keep them higher for longer? It's World Business Express from the BBC World Service. I'm Luke Wilson. Volkswagen's top executive in China says the country's car industry is being hit as hard as it was during the pandemic, and some of Europe's biggest chemical plants are shut down over soaring gas prices.

Brent crude oil has fallen below $100 a barrel, relieving some pressure that the rising prices have put on inflation around the world. But for once, it's not the oil itself that's causing concern. It's the prices companies are paying for the tankers to transport that oil. Those have increased more than 12-fold in just a few months. And Richard Mead, editor-in-chief of the maritime journal Lloyd's List Intelligence, told me those costs are a bigger inflation risk than the oil price itself.

Richard Mead (0:56)

It's a big problem and it's getting bigger. The Middle East crisis has exposed just how dependent the global economy is on a relatively small fleet of ships. The biggest inflation risk in global energy markets right now isn't actually the price of oil. It's the price of moving oil.

And we've got a situation now where some oil tankers are earning more than a million dollars a day, which is pretty unprecedented in modern shipping.

Luke Wilson (1:20)

And when we talk about a barrel of Brent crude being around $100, how much of that is shipping costs?

Richard Mead (1:27)

Well, traditionally, not a huge amount. But obviously, this week, we're seeing some assessments of $1.25 million a day for the Middle East Gulf to China.

Obviously, that freight is becoming much more important. It's becoming a strategic part of the calculation of the energy markets. The bigger economic story actually is that tanker rates are surging across the world. So you've got routes thousands of miles away from the conflict zone that are being pushed up by this. And that's happening because the market is running short of these ships. The Middle East crisis has created this series of workarounds. So you've got what's called a ship-to-ship transfer, transferring oil from one ship to another ship. And this shuttle service has created longer trading routes that tie up the vessels for much longer than normal. That means fewer tankers are available everywhere else. And we are seeing an increasing number where you're splitting the cargo, which otherwise would have gone in a much larger ship across two or even three ships. So that in itself is then keeping things tied up. It's disruption on disruption on disruption, and it is finally affecting the market in a fairly dramatic way.

Luke Wilson (2:31)

How big an impact does that have on things like prices feeding through in inflation?

Richard Mead (2:35)

Well, it is definitely going to be inflationary. And the key question is whether this pushes up energy costs more. I mean, freight now accounts for a much, much larger share of the delivered cost of oil than normal. And that means that the refiners are increasingly trying to source oil closer to home to avoid those transport costs. That in itself is having a disruption.

But the bigger structural shift is actually the fact that we've now got oil companies and governments that are starting to view these tank fleets as strategic assets, much like countries maintain strategic petroleum reserves. Control of the ships is becoming an energy security issue, not just a shipping issue. That in itself is adding cost and the actual cost of the assets is going up hugely. So this is a story that's going to run for some time, and this disruption is not going to unwind quickly.

Luke Wilson (3:20)

Richard Mead, editor-in-chief of Lloyds List Intelligence. Listening to that is Fiona Sincotta, senior market analyst at Stonex. Why have we seen the oil price come down today, Fiona?

Fiona Sincotta (3:31)

Yeah, so I mean, oil was down today. It's down around 5% so far this week as well. And this is as Saudi Arabia has signaled reopening of its east-west pipeline and resuming exports from its Red Sea coast. This has helped ease some supply concerns. I mean, oil had surged almost $110 after Saudi Arabia shut this key pipeline around two weeks ago following a series of drone strikes.

Luke Wilson (3:56)

And elsewhere, the share price of Meta, Facebook and WhatsApp's parent company, jumped more than 11% on Monday. What's behind that?

Fiona Sincotta (4:05)

Yes, so a huge jump. It was actually the third largest one-day increase ever. We saw $192.3 billion worth of market cap added to the company. And this was because Muse AI, so this is the Meta AI personal assistant, became the most downloaded free app on the Apple Store. And basically, this is sort of, we're seeing Meta being repriced as an AI leader against peers such as Anthropic and OpenAI.