Bold Supertanker Bet Keeps Growing With US Gulf Coast Locked Up

A shipowner’s once-in-a-generation wager on oil tankers has made it so powerful that it controls an overwhelming majority of supertankers that can collect American oil next month.

The push by South Korea’s Sinokor group — with backing from Mediterranean Shipping Co. — to scoop up very-large crude carriers has given it unprecedented control over a big share of the global fleet for immediate hire.

This trend has been called “seismic” by a rival and pushed hiring costs to multiyear highs.

The scale of Sinokor’s position became more apparent this week, as it controlled almost all the VLCCs available for hire to load oil from the US Gulf Coast, a major oil-exporting region.

Over the next 30 days, it controls every ship that could arrive in the US Gulf and isn’t currently holding a cargo, according to data from Signal Ocean.

Signal’s estimates are consistent with the views of multiple other tanker-market participants, who say Sinokor has a very dominant share of available carriers in that region.

This situation is a clear example of how Sinokor’s push is upending the tanker market, and in turn boosting earnings for shipowners. The cost of booking a supertanker from the US Gulf Coast to China topped $17 million on Wednesday, the most since 2020.

Having so much of the available fleet gives Sinokor more control over the rate it will charter out ships for, people involved in the market said.

Why Did This Happen?

Tanker earnings had already been strong due to surging oil output and geopolitical risks such as the risk of conflict with Iran.

One owner estimated recently that Sinokor controlled about 150 vessels, or close to 40% of the number of unsanctioned ships for hire globally that aren’t already committed to contracts according to industry analysis.

How Did Markets React?

The extreme example of what’s happening there is the clearest evidence so far that Sinokor’s push is upending the tanker market, and in turn boosting earnings for shipowners.

The scale of Sinokor’s position has also made it a subject of interest for investors, particularly those looking at companies like Okeanis and TORM, which are positioned to benefit from rising rates according to market reports.

What Are Analysts Watching Next?

Analysts are keeping a close eye on how long the current high freight rates can be sustained. Some suggest that if Sinokor is successful in cornering the market, rates could remain elevated for at least three years.

However, there is also caution. The main risk is that rates could disappoint and come back to more normal levels, which would impact company valuations and dividends as analysts warn.

Moreover, volatility is expected to remain high as long as rates are at these levels. For companies like Okeanis, which has one chartered-out vessel and the rest trading in the spot market, the potential for further gains is significant.

The current market dynamics also highlight the importance of companies that can adapt quickly to changes in freight rates and market conditions.

For now, the situation remains favorable for shipowners. The dominance of Sinokor in the US Gulf Coast market has created a unique set of circumstances that are being closely monitored by the industry.

As the market evolves, the impact of these dynamics will continue to shape the strategies of shipping companies and influence investor sentiment.