Key facts
- Saudi Arabia's East-West pipeline resumed pumping crude after an 11-day shutdown.
- VLCC tanker daily earnings on a Gulf-to-China route soared to $1.2 million this week.
- Freight costs now make up at least 25% of the total cost of crude delivered to Asia, up from 5-6% in 2025.
- Trafigura established Volare, a shipping firm operating 14 VLCCs.
- Libya's El Sharara oil field shut 65% of its output due to a tribal dispute.
- Ukraine drone strikes halted crude processing at Russia's Moscow refinery.
The restart of Saudi Arabia's East-West pipeline has offered some relief to oil market bears, but persistent tightness is indicated by soaring freight and diesel prices. The conflict in the Persian Gulf has driven VLCC tanker earnings to unprecedented levels, with daily rates for a Gulf-to-China route reaching $1.2 million this week. This surge in shipping costs means freight now accounts for at least 25% of the total cost of crude delivered to Asia, a significant increase from 5-6% in 2025, impacting oil company profits.
Saudi Arabia's 7 million b/d East-West Pipeline resumed pumping at a low rate after an 11-day shutdown following an attack. Restoring its pre-attack flow of around 4 million b/d could take six to eight weeks. The disruption has strained tanker availability, pushing Asian refiners to opt for smaller Suezmax tankers for long-distance voyages, such as Chinese refiners importing Brazilian crude.
In response to market conditions, global trading firm Trafigura has launched its own dedicated shipping firm, Volare, operating a fleet of 14 VLCCs. French oil major TotalEnergies fixed the Kuwait Prosperity tanker last week at $75 million, with similar offers this week nearing $100 million.
Elsewhere, Libya's largest oil field, El Sharara, shut 65% of its output due to a tribal dispute, and Ukraine drone strikes halted crude processing at Russia's Moscow refinery, requiring weeks of repairs. Water levels on Germany's River Rhine are forecast to fall to critically low levels, restricting navigation and diesel deliveries ahead of winter. Glencore's fraud case against bankrupt refiner Prax was allowed to proceed in a UK court, seeking to reclaim a $267 million loss.