Oil Shipping Costs Soar for Key Routes on Russian Invasion

(Bloomberg) -- The escalating crisis over Ukraine has catapulted the cost of shipping oil by sea. 

Freight rates for hauling crude from Russia are surging as sanctions imposed on the country push up the risks of carrying cargoes on those routes, while a scramble for alternative supplies boosts the rates for other passages. Shipowners are offering at least double the last transacted rate to carry so-called ESPO crude from Kozmino, which loads oil from Russia's Far East, to ports in China, according to traders and a shipbroker who asked not to be identified.

Rates from Russia's Baltic and Black Sea regions in Europe have both added more than $100,000 a day, reaching the highest since 2008, according to data from the Baltic Exchange in London. Meanwhile, vessel owners are charging far higher prices to send giant supertankers with 2 million barrels of oil from the U.S. to the Far East after doing deals at nearly double the levels earlier in February, according to people familiar with the matter. 

Commodity markets have been thrown into turmoil by the Russian invasion, with merchant vessels hit in the Black Sea. Brent crude has topped $100 a barrel, and prices surged again Monday after a fresh raft of sanctions was directed against the Russian central bank and other entities. That's raising the risk of handling the nation's raw materials, while boosting interest for alternatives to Russian oil such as American and Persian Gulf crudes.

Although American oil is considered pricey versus comparable crude from the Middle East, grades from the U.S. Gulf Coast such as Mars Blend are alternatives to Russia's flagship Urals crude, traders said. Other replacements are Iraq's Basrah Medium and Saudi Arabia's Arab Light, while those for ESPO and Sokol include Murban, Arab Extra Light and West Texas Intermediate. 

In addition to avoiding Russian crude, buyers are also looking to transport their oil cargoes aboard non-Russian vessels, adding premiums for other tankers, according to people familiar with the matter. Adding to this is the rising cost of ship fuels, also known as bunkers. In the U.S., bunker fuel has skyrocketed to a seven-year high. 

Furthermore, ship staffing may be starting to become an issue as Ukrainian citizens have been asked to go back home to help with the war effort, the people said. Russian and Ukrainian seafarers make up 14.5% of the global shipping workforce, the International Chamber of Shipping said in a bulletin last week. 

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With assistance from Bloomberg