Oil's binding constraint is now ships, not barrels

The noise is in volumes, the signal in ships

The headlines are about volumes. Fearnleys data cited by Oilprice on 8 October show regional Middle East crude exports exceeding pre-war levels for a few days in late September. Kpler data in our 8 October event record put exports from the Gulf of Oman and Red Sea outlets at 6.7 million barrels a day. That is more than double the pre-war figure. The barrels appear to be reaching the market.

The shipping market told a different story the same week. Bloomberg data show hire for a VLCC, a supertanker carrying 2 million barrels, on the Gulf–East Asia route hitting an all-time high of about $1.4 million a day on 7 October. According to an Oilprice analysis on 10 October, the rate rose about 40% in the first week of October alone. September's record had been just above $1 million a day. Poten & Partners data cited by Gulf News put the same route at about $30,000 a day in early January. Clarksons puts average global VLCC spot earnings close to $642,000 a day.

The constraint sits in the transshipment system

What is swallowing ships is not Hormuz itself but the system built to get around it. UKMTO data in our 10 October event record show 129 exits and 146 entries through the strait in the 7 days to 9 October, 275 transits in all. Before the war, ABC News reports, more than 100 merchant vessels passed each day. Kpler data cited by Al Jazeera put crude moving through the strait at 8.5 million barrels a day in the week to 7 October, roughly 40% below normal.

According to Oilprice, much of the global tanker fleet is now tied to ship-to-ship transfers outside the strait, and more vessels get locked in as flows recover. A 2-million-barrel cargo loaded inside Hormuz and transferred to a second ship outside ties up 2 vessels for one barrel, plus extra waiting time. Vitol chief executive Russell Hardy told the FT the arrangement is highly inefficient and there are not enough ships to go round. Sparta Commodities analysis cited by the Daily Caller shows US Gulf–Asia rates up more than 300% since mid-August.

The threshold: once freight exceeds the price spread, the route closes

The threshold for this constraint shows up in routes rather than prices. Simpson Spence Young data cited by the Daily Caller show a 2-million-barrel November voyage from the US Gulf to China fixed at $80 million in early October. That is about $40 a barrel, against $8.60 before the war. Japan's Cosmo Oil provisionally took a supertanker at $81 million for 19–21 November loading. According to Oilprice, the arbitrage for shipping US crude to Asia has effectively closed at these levels.

Asia's answer has been to turn back to the Gulf, and that turn has been priced. Reuters reports that ADNOC set Murban's official selling price for November at an $11 premium to Dubai on 8 October. According to Oilprice, the market premium also climbed back above $11 the same day. EIA data put US crude exports at about 4.8 million barrels a day in the week to 2 October. If the Asian door closes, that volume swings back to the Atlantic.

Freight has become a price component in its own right. On Poten's numbers, a rate of $1.3 million a day equates to about $33 a barrel, assuming $120 Brent, or 27% of delivered cost. In January the share was 3% and the cost $1.73. Matching contract months, ICE Brent's December future (LCOZ6) settled at $100.58 on 6 October, while the EIA Brent spot series stood at $125.44. The $24.86 gap shows how much more a physical barrel costs to deliver than a paper one.

Second-order effects · from the Atlantic to the Mediterranean bill

The VLCC shortage is spilling over into smaller ships. Oilprice reported on 8 October that Suezmax and Aframax day rates also rose as buyers and sellers moved to smaller tankers. Argus, cited in Oilprice's 10 October analysis, says freight premiums are adding tens of dollars a barrel to the cost of delivered crude. Both classes that carry crude into the Mediterranean are now part of the same shortage.

Türkiye sits at the end of this chain. According to AA, the energy import bill rose 33.8% year on year in August to $6.46 billion, while crude import volumes fell 1.1% to 2.84 million tonnes. The Trade Ministry's preliminary September data show total imports up 5.9% at $31.2 billion. Exports covered 83.2% of imports, and 100.3% excluding energy. Energy accounts for almost the entire external gap. The detail of September's energy bill will come with TÜİK's release on 30 October.

What would disprove this reading

Our thesis is that over the next 3 months the binding constraint on Gulf oil will be ships rather than volume, with the cost passing through freight into delivered prices. We see this as the most likely path, at 50%. The first disconfirmer: if UKMTO's weekly Hormuz count rises from 275 transits to above 500, the need for transshipment falls and ships are released. The second: if VLCC hire on the Gulf–East Asia route drops below $500,000 a day within 4 weeks while transits stay low, the constraint is not in ships.

The third disconfirmer is on price. If ADNOC's December Murban price, due in early November, comes in at a premium below $5 to Dubai, Asia is not paying a ship-scarcity premium for Gulf barrels. The risk in the other direction is clear. The tanker fire off Fujairah on 8 October and strikes on 2 outbound tankers on 10–11 October show that the transfer zone is also a target. If that zone is hit, the constraint shifts from ships back to physical supply.