Oil prices jump 5 percent on US-Iran tensions

Shipping rates for Mideast oil surge

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SINGAPORE/ LONDON/ HONG KONG
Brent oil pared its biggest weekly increase in four months after President Donald Trump pulled back from retaliatory strikes on Iran for downing a US drone as tensions flare in the Middle East. Futures erased gains in London on Friday after the US abandoned a military strike against Iran on Thursday night, but are still up 3.9 percent for the week. Trump said earlier on Thursday it was hard to believe the downing of the drone in the Arabian Gulf was intentional, suggesting a loose and stupid individual may have been responsible. Hostility in the region has escalated recently with a missile strike by Yemeni rebels on Saudi Arabia and the attack on two tankers near the Strait of Hormuz, which the US blamed on Iran. While crude has rallied on Mideast tensions, an entrenched US-China trade war has dented the demand outlook and weighed on prices over the past two months. Washington and Beijing are set to resume talks next week, providing a glimmer of hope for the global economy. The drone was shot down to send a clear message to the White House, an Iranian military official said, according to a story published by Iranian state-run media on Thursday. Oil tanker owners are raising the prices they charge to export Middle East crude as tensions surge in a region that accounts for about a third of all seaborne petroleum shipments. Rates for transporting 2 million-barrel cargoes from Saudi Arabia to China jumped to almost $26,000 a day on Thursday, more than double where they were at the start of June, according to Baltic Exchange in London. Shipbrokers report a surplus of vessels in the Arabian Gulf, indicating that owners are reluctant to accept charters at low rates given the current risks. Nothing much has changed in terms of supply and demand since the latest attacks, so it’s pretty much all a risk premium, said Halvor Ellefsen, a shipbroker at Fearnleys London. A survey of shipbrokers involved in the Middle East trade shows they anticipate there being 22% more ships available for charter in the next four weeks than probable cargoes. That’s a smaller surplus than last week but still higher than normal for the time of year. Despite the glut, vessel owners including Frontline Ltd, one of the world’s biggest operators of supertankers, briefly paused charters in the immediate aftermath of the latest round of attacks in the region last week. The US blamed Iran for those incidents, something that the country denied. Insurance rates also soared after those incidents, with companies charging at least $180,000 in premiums to go to the Arabian Gulf. They were about $30,000 early this year before tensions began to escalate.

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