Behind the scenes of the Strait of Hormuz war: oil hasn't stopped, it just needs many more ships
Everyone is looking at the price of oil. But the war in the Gulf created another bottleneck that barely makes headlines: tankers.
When combining shipping data, investment houses, and what one of the world's largest investment firms bought in Q2, a much more interesting story emerges.
Oil continues to flow, just by a longer route
The war began on February 28, and since then the Strait of Hormuz has been a battlefield.
According to a count by a US-led naval force, there were a dozen attacks on ships between September 28 and October 2 alone.
And still, oil is being exported.
According to Clarksons, about 12 million barrels per day are again passing through the Strait, about 80% of pre-war levels.
And according to Kpler, about 40% of oil exports are already bypassing the Strait: Saudi Arabia is piping oil to the port of Yanbu on the Red Sea, and much of the oil that does pass through the Strait is transferred from ship to ship at sea, off the coast of Oman.
Why is it important to understand exactly how the oil is being exported?
Very simply: a small tanker takes the oil out of the Strait, where it is pumped into a supertanker, which then continues to Asia. That same barrel suddenly needs two ships instead of one, and days of waiting at sea.
According to Oilprice, in September, 40 supertankers were needed to export a quantity that required 24 in August.
"The shuttle system in the Gulf is doing wonders in getting the oil out, but it requires many ships," said Chris Beauchamp of IG, in an Al Jazeera article from October 6.
And here's the really important point: what does this do to the price of a ship? In the first week of October, the average price for chartering a supertanker was about $665,000 per day, a record, and 72% above early March. And there's no way to quickly bring in new ships: according to Clarksons, the supertanker fleet has 912 ships, their average age is 13.5 years, and 42.6% of them are 15 years or older.
And now for the part no one is connecting: what the big money did.
We went and checked, and found out who got in before the headlines.
According to a 13F filing for the quarter ended June 30, Fidelity increased its holding in Frontline ($FRO) from 942,746 to 6,897,463 shares.
This is a 7.3-fold increase, worth about $240 million based on the June 30 close.
In the same quarter, it also increased its holding in Scorpio Tankers ($STNG), refined product tankers, from 171,365 to 1,553,865 shares.
Since June 30, Frontline has risen about 51%...
And investment houses joined in.
On September 18, BTIG raised the targets for four tanker companies on the same day: Frontline from $55 to $70, International Seaways ($INSW) from $100 to $130, Scorpio from $100 to $110, and DHT ($DHT) from $23 to $28.
On October 5, B. Riley raised International Seaways' target to $140, and on October 13, Morgan Stanley raised Scorpio's target from $76 to $90.
And what happened last week?
Here the story really starts to get interesting. Between October 12 and 16, Frontline fell from $59.19 to $52.49, about 11%, and International Seaways fell from $125.04 to $109.99.
According to Reuters, the freight rate for a supertanker from Oman to China fell on October 16 to about 776 points on the market scale, from 841 the previous week.
One reason: statements by the Trump administration about lifting sanctions on 'shadow fleet' tankers, which would add ships to the market.
Freight rates are still near their peak, but they depend on the war. An agreement to open the Strait, or the release of tankers from sanctions, could quickly lower them, and stocks would also react.
Conversely, if the shuttle operations in the Gulf continue, the old fleet will not be enough; there is demand for the replacement of about 130 ships.
So the real question is not how much a barrel of oil costs, but how many ships are needed to move it, and what do you think: will the Strait open before the fleet can be renewed?