KUALA LUMPUR: Surging oil tanker rates amid the Middle East conflict could raise operating costs for Malaysia's oil and gas (O&G) industry, although economists said upstream producers and tanker operators may benefit from higher crude prices and charter rates.
Oil tanker rates for very large crude carriers (VLCC) from the Persian Gulf to Asia climbed to more than US$37 per barrel by mid-October, more than five times their pre-conflict levels, the International Energy Agency (IEA) said on Wednesday.
The agency attributed the surge to congestion in the Strait of Hormuz, trade rerouting and increased ship-to-ship transfers since the conflict began in late February.
These disruptions have lengthened delivery times and reduced fleet efficiency, pushing freight rates higher.
As of the latest reports available up to Oct 22, VLCC tanker rates on key Middle East-to-Asia routes have reached US$1 million to US$1.4 million a day, although some routes have eased from their peaks.
At a daily equivalent rate of US$1.4 million, a 30-day round voyage would imply about US$42 million in time-charter-equivalent earnings.
Revenue Gains, Cost Pressures
Economists noted that the impact on Malaysia would be mixed, with higher crude prices potentially boosting petroleum revenue and encouraging exploration and production (E&P) activities.
Rising transportation and insurance costs could squeeze refining margins, increase fuel subsidy requirements and raise business operating costs.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said higher fuel and insurance costs were pushing up transportation expenses, requiring O&G companies to strengthen cost management and improve productivity.
"The O&G industry would need to be vigilant in managing their operating costs by ensuring operational excellence as their main tools to manage costs, along with increasing the productivity level," he told Business Times.
Afzanizam said oil transportation costs could rise further if the conflict persisted.
He added that disruptions to oil supplies through the Strait of Hormuz could increase the need for E&P activities as energy security risks remained elevated.
Rakuten Trade Sdn Bhd vice-president of equity research Thong Pak Leng said the impact of higher freight rates would vary across the O&G value chain.
"The impact is mixed. Higher freight costs will squeeze refining margins and increase crude import costs, while tanker operators such as MISC Bhd could benefit from stronger charter rates.
"Upstream producers should remain relatively insulated," he said.
Thong said further disruptions to shipping through the Strait of Hormuz, coupled with higher insurance premiums and vessel shortages, could push freight rates higher.
However, he noted that rates were already exceptionally high and could retreat sharply if geopolitical tensions eased.
"Higher crude prices should benefit upstream producers and potentially increase government petroleum revenue.
"However, Malaysia is also a net importer of crude oil, meaning higher freight and energy costs could pressure refiners, increase subsidy requirements and raise business operating costs," he said.
Thong said the benefits would therefore be concentrated in upstream production and shipping, while the wider economy faced higher cost pressures.
Transport Cost Spike Seen Temporary
LBB International chief executive officer Dr Marco Tieman expects the impact on Malaysia's transportation costs to be temporary, despite the prospect of further escalation in the Middle East.
"The situation is a little bit fluid with an increasing escalation in the Middle East expected in the coming weeks.
"I don't think this will be long term impact to the transportation costs for Malaysia," he said.
Tieman added that Malaysia is in a favourable position as a significant O&G producer.
Nevertheless, the IEA has noted that the disruption extended beyond crude oil shipments, affecting the availability of vessels used to transport refined petroleum products.
The agency said exceptionally high earnings from crude shipping had encouraged some tanker owners to redeploy Long Range 2 (LR2) vessels, which are commonly used for long-haul oil product shipments, to carry crude instead.
This has reduced vessel availability in the oil product tanker market, pushing up freight rates as cargoes are redistributed among smaller vessels.
By mid-October, freight rates for Long Range 1 (LR1) tankers travelling from the Persian Gulf to Japan had climbed to nearly US$27 per barrel, about five times their pre-conflict levels, the IEA said.
The agency also reported that shipping costs had risen sharply on other routes, with rates for Suezmax tankers carrying crude from West Africa to Europe exceeding US$22 per barrel by mid-October, more than four times their pre-conflict levels.
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