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242. Bull, Bear & Beyond – Vantage: Shipping through the storm – how Hormuz is reshaping the tanker market
16 Plays4 days ago
In this Vantage interview, Neil Shah sits down with Henry Curra, global head of tanker research at Braemar, to explore how recent geopolitical tensions surrounding Iran and the Strait of Hormuz have transformed global shipping markets. Henry explains Braemar’s role at the centre of commodity transportation and outlines how tanker freight rates are driven not just by oil volumes, but by vessel availability, trade routes and ‘ton-mile’ demand. He contends that shipping has increasingly become a geopolitical weapon since 2022, with disruptions in key trade corridors creating inefficiencies that have supported stronger freight markets. The discussion also examines the reality behind media headlines, the effect of risk premiums and why some shipowners are beginning to return to the Middle East despite ongoing uncertainty.
Henry also unpacks the concept of the ‘urgency premium’ in freight markets, highlighting how fear of supply disruption led buyers to pay substantially higher shipping rates during the height of the Hormuz crisis. He discusses which vessel classes have emerged as winners and losers, why Very Large Crude Carriers and Long Range 2 tankers could benefit from a reopening of regional trade flows and how countries are reassessing energy security in response to recent events. From building strategic petroleum reserves and diversifying crude supply sources to investing in new pipeline infrastructure that bypasses the Strait of Hormuz, the interview offers a detailed look at how governments, energy companies and shipowners are adapting to a more fragmented and security-conscious energy landscape. Watch the full interview now.
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Transcript
Introduction to Tanker Market
00:00:06
Speaker
Welcome back to Vantage. Now, there hasn't been a day ah over the last sort of six months where we haven't thought about the Straits of Hormuz, what's the flow of shipping. And I thought we would get someone in who could explain what's going on and what's going on in in shipping more generally. So I'm very happy to have ah Henry Currer, Global Head of ah Tanker Research at Braemar,
00:00:36
Speaker
Henry, maybe you can just explain a little bit about, for people who don't know, Bremar are and then for investors new to shipping, perhaps what your role within Bremar is and what makes the tanker market particularly distinctive from other areas.
The Role of Braemar in Shipping
00:00:54
Speaker
um Yeah, thanks, Neil. um So, Braemar is a ship brokerage. We are there to arrange ah transportation of commodities. So, not just oil, but dry bulk and containerized freight, yeah LNG.
00:01:07
Speaker
um
00:01:11
Speaker
We're essentially, on one hand, we do chartering. On the other hand, we do sell and purchase. So we're actually sort of actually engaged in buying and selling or not. We don't have skin in the game, but arranging the buying and selling of of ships. And we also have a big derivatives arm, so securities division. um My role within that, so I'm head of research, so I oversee all commodities, but my focus is on is on tankers.
00:01:35
Speaker
um My role is primarily to advise our brokerage clients um on the timing of entry and exit, whether that's time charter or spot charter. Okay.
Impact of US-Iran Tensions on Shipping
00:01:46
Speaker
The world changed dramatically in February. um The US led sort of strikes on Iran, sort of shaped energy in the shipping landscape, or you know, almost in a matter of weeks, it sort of changed things. um From your seat, you know, talking to brokers, charterers and everyday owner sort of the owners,
00:02:07
Speaker
ah how how to Walk us through how the world has changed. And um I'm curious, you know how accurate is sort of mainstream media reporting from actually what you're seeing on the ground?
00:02:20
Speaker
Yeah, so so so how has it changed? I think the first thing to mention is that certainly on the oil side, um we've seen ah commod a weaponization of of freight and a weaponization weaponization of commodities really you know since 2022.
00:02:35
Speaker
um This is the the latest phase in that and of course now it's bilateral. So here we've got Iran who realizes that they can weaponize freight as well. yeah And they've you know got the world where it wants it with this chokehold on Homoz or certainly has done and the threat is very much still still there. um And that weaponization of threat freight obviously has been very effective at increasing the efficiency of transport. And so we've had a period really since 2022 of very strong ah freight markets, particularly on ah on on the tanker side.
00:03:06
Speaker
What Iran has has done by by closing the straits is um Really, I mean, obviously we've seen a tremendous reduction in flows through the Straits whilst this war's been on, particularly you know since ah since it started in the early days. Now we've got, you know we're coming out of that that process. We've seen a huge volume now moving out of the Straits um to to rebuild. i mean, rebuilding stocks gonna be a slow process, but to satisfy demand that was there before, but also to rebuild stocks. So we're seeing a very active Middle East market at the moment.
Middle East Market and Energy Security
00:03:40
Speaker
We're also seeing a lot of players nervous about an over-reliance on the Straits, on the Middle East crude. And we're also seeing an extent and acceleration of this drive towards and energy security. So whether that's an acceleration of EVs, which might impact demand um um or or enhanced stock building going forward, I think those are the most significant shifts.
00:04:02
Speaker
Okay. And and so it sounds like, you know, from the mainstream media reporting, it's generally in line, I think, what with what you're describing. Are there any nuances that you would say are different for the when you when you see what is being reported to what you're sort of picking up? Well, I mean, in the early days, so so you know when when this when the Straits were first announced with the MOU announced that they're open, we had two conflicting stories, one from Iran, one from the US. s And so we were trying to muddle through you know what was the reality. yeah The difficulty is a lot of the data that we collect on movements from you know AIS tracking just wasn't there.
00:04:37
Speaker
And so, you know, the US with its satellites and its escorts and its you know it was had perhaps had better visibility of what was moving through the Armani passage. yeah um Whereas Iran was still saying it's it's closed it's closed to um to traffic. so So, yeah, in the early days, now we're getting more visibility. We're starting to see ships turn the as AIS on.
00:04:57
Speaker
We're getting a lot more volume coming out of out of the Middle East. A lot of it's obviously Iranian volume for the time being. yeah um We're not seeing so many ships moving in to fixed cargo because it's still a high risk, viewed as a high risk area, yeah but it is happening. And certainly I think that's what we're seeing that the media aren't seeing is is the extent to which you know the the risk the players with a bigger risk appetite are starting to look to move move back in again. Okay.
Understanding Tanker Freight Pricing
00:05:21
Speaker
So um and before we sort of dive into it, just to step back and give us the framework for actually how the tanker market works. So, you know, we'll we'll go on to race. But for those who don't understand the market, how does, you know, tanker freight pricing work?
00:05:38
Speaker
What are sort of ton miles? Why do they matter more than sort of raw x export volumes? And what what are the sort of indicators an investor should be watching in terms of getting a read of where rates are are heading?
00:05:52
Speaker
so So the spot market essentially is its its supply and demand. It's the number of cargoes versus the number of ships into in position to move those cargoes. What determines the number of ships in position is a function of ton miles. So so if if we've had a period where, let's say, VLCCs, the very largest tankers, have been in a lot of long haul from Atlantic Basin to Asia, they're tied up with oil and water for long periods. There's obviously going to be fewer in position to move cargoes.
00:06:23
Speaker
Right now in the Middle East, obviously, even fewer because a lot of players don't want to go into the Middle East. yeah you know The BPs and shells don't want to play that market. so So that really determines that the the supply and demand dynamics. um It's a little bit more complicated than that obviously because each ship is different, each player is different. They have different sort of behaviors, different psychology, different needs at that point in time which can govern govern the freight market.
00:06:48
Speaker
um so So yeah, and that's obviously what the broker's job is is to do, to to measure that sentiment and get a feel for where the day-to-day freight market is. Okay. And any sort of lead indicators or things that you walk where you look at or suggest people look at?
Urgency Premium and Market Dynamics
00:07:03
Speaker
Yeah. i mean, obviously we, as a research group, we're very event-driven. The tanker market is event-driven. When we're in ah a position of overcapacity, it's ah it's a cyclical market. There are times when you have, you know, for extended periods, many years, weak freight markets where you can throw whatever you like at the market and it won't move freight markets. Right now, we're very finely balanced.
00:07:25
Speaker
And so small changes in small supply shocks on the oil side or demand shocks, you know they can have a big influence on on on freight. So obviously, we're very headline driven at the moment. Okay.
00:07:36
Speaker
Now, i've um I've got to be careful in terms of how i describe this, but you're you're you're known for introducing fudges. into your model when traditional supply and demand frameworks stop stop working. The contango fudge in 2014, the refinery margin fudge in 2025, and now the urgency fudge. um so It says suggests to me that sort of classical models struggle to explain what is going on in the freight rates. um I'd love to understand, you know, why you feel that you need to and introduce, we call them fudges, I guess, adjustment factors. um And in particular, we given we're here today, what is the urgency premium really sort of trying to capture?
00:08:21
Speaker
um Yeah, so so yeah i fudge is a little bit tongue in cheek. um you know the the The fundamentals, measurable fundamentals, don't do a particularly good job at explaining day to day movements in freight, partly because there's a lag.
00:08:35
Speaker
yeah So a lot of the data will emerge you know three or four weeks after the spot fixtures taking place and we are the spot spot market. um But also because a lot of it is sentiment driven. And so what we're trying to capture with the with the urgency factor or or the contangle contango factor, particularly refining margin factor, is if there's a lot of profit to be made or a lot of need to get that that fuel in quick, because perhaps your refinery is running out of feedstock, um then you will be less sensitive to price of of freight.
00:09:06
Speaker
and and And we tend to see in those environments, charter is paying more a for for tonnage. Okay, so we're at that point where it feels like we're starting to settle down, that this strait is starting to open up.
00:09:24
Speaker
ah You still hear slightly conflicting stories around it. Let's delve into the sort of urgency premium because ah it it it tells you, perhaps it's giving us a sign of of of of what what is happening. It seems fragile.
00:09:38
Speaker
um You've pointed to sort of dated versus front month spread spreads as a cleanest sort of real time signal. Perhaps you could sort of, you know, for the layman, etc. Explain what you mean by that and explain what it's telling us.
00:09:57
Speaker
yeah Yeah, so so i mean the urgency premium when we introduced it was in the early days of of the of the conflict where there was a genuine panic, particularly countries that maybe didn't have that sort of s SPR ah reserve, that s SPR buffer. And they were you know urgently requiring feedstock, whether it was refined products or crude oil, and obviously needed the ship to move it. And so you would find people were fixing further and further forward.
00:10:23
Speaker
so So you were doing sort of month's worth of business in a week. And obviously the freight rates were pushed up very high very high in those times. Now, when we looked at that, we sort of it it was an extreme backwardation of of the oil market where Dated was trading at a big premium to front month.
00:10:40
Speaker
And that was for us quite a useful measure of the urgency to get to get oil now. um Of course, that evaporated quite quickly. So now we' weve we're reversed. yeah So now Dated is trading at a discount to to front month, ah which suggests a much more relaxed oil environment. And we'd expect that urgency premium to have gone. And indeed, freight markets did relax from their peaks. yeah They're still very strong.
00:11:03
Speaker
And particularly out of the Middle East, they're still very strong because there's still a risk premium. um But yeah, the urgency factor probably is is not playing as big a role as it did. Okay.
Tanker Segments and Market Opportunities
00:11:11
Speaker
hey um In terms of segment winners and losers, um you know I guess the sort of different festival classes have been hit fairly unevenly over the last three, four months.
00:11:26
Speaker
um who Who do you see as a sort of winners and who are the losers? um And given that there is likely to be a sort of a meaningful sort of divergence, does that sort of create opportunities going forward?
00:11:40
Speaker
Yeah, I mean, the the logical sort of conclusion is that the ones that were most reliant on Middle East Gulf for their demand base were the biggest losers from the closer of Hummers and would therefore be the biggest winners from from the Rio. And that's VLCCs on the dirty side, on the crude side, and what we call LR2s on the the the largest of the coated tankers that are able to clay to trade clean, refined products. um So if that demand comes back, then obviously they're all out of position and there should be a a sort of rally in in freights for those sectors.
00:12:13
Speaker
Interestingly, VLCCs did pretty well during during the the closure of Hummers. And that was partly because you saw an extension of Tamal demand because more Atlantic Basin was picking up to move to Asia to replace the lost Middle Eastern middle eastern crude. But also because even going into the the conflict, we had one or two players or one player in particular um that had massively consolidated the VLCC fleet and was putting a lot of pressure on, upward pressure on freight rates. And they're still very much there. And so now it's opening up and obviously lot of Iranian barrels are there. A lot of you know Middle Eastern players who haven't been able to to get their oil to market, um they're relying on on
00:12:53
Speaker
ship owners or operators with a risk appetite to come in and collect their cargoes. And so these particular players who have been acting to consolidate the fleet are really the only ones there and to do it. And so they're asking asking for you know big numbers. Okay. m in terms of i mean I think we've touched on indicators. One of the things that that I thought was interesting is you know you picked up...
Post-Crisis Energy Strategies
00:13:13
Speaker
but I'm always curious as to... We go through a crisis like this,
00:13:18
Speaker
What do we learn and how do we sort of change? um You talked about you know this drive towards sort of energy, sort of security and perhaps diversification. If you look forward, you know ah do what are the ah two or three things that you think people are going to be thinking about to make sure that they're resilient going forward, both you know tanker owners, but also their customers?
00:13:41
Speaker
Yeah, I suppose you know that the two obvious um shifts will be ah once stocks have re been rebuilt, potentially building out stocks as well. yeah So, you know, to have and countries that haven't really had ah an s SPR, a strategic strategicic petroleum reserve, will be looking to get some sort of buffer should this happen again. Part and parcel of that is looking at how you can decrease your reliance on that particular region. So particularly the Asian markets, so Japan, Korea, China, you know a lot of Southeast Asia, very, very reliant before this crisis on on the Middle East Gulf. yeah And so they'll be looking at you know what's the possibility of getting some contractual volumes from West Africa, from US and so on. I think the other side of is on supply side, oil supply side, is that there's now urgency to bypass the Straits.
00:14:28
Speaker
So you see Adnacht looking to to you know add extra pipeline capacity. We've got one coming on in 27, they're looking to build a product, you know, refined product pipeline as well. I'd expect the, you know, the the Saudi pipeline to continue operating um certainly for a while. And and people, you know a lot of those players looking at looking at what possibilities, which, you know, that's going to cost money and maybe that has implications for the long-term, know, price of crude as well. yeah ah It's been sort of fascinating hearing about the market.
Further Resources and Research
00:14:59
Speaker
If people wanted to learn more, are there sort recommended resources that you would direct them to? to What would you suggest that they go and have a look at?
00:15:08
Speaker
Yeah, I mean, from our perspective, you know, we obviously, we we're at the cold phase, so so we get to see quite quickly how the market is responding to to these events or or perceived events. We publish everything that we write on analytical perspective on a platform called braemarmarkets.com. Okay. So that's got all our data and and sort of, you know, insights.
00:15:30
Speaker
And so, yeah, if anyone wants to to get hold of that, contact us at research at braemar.com. Fantastic. Henry, thank you so much. It's been great to hear about the tanker market from you and hopefully the world calms down, but we will certainly take a visit or to the site and if we get any further questions, we'll pass them on to you.
00:15:49
Speaker
Wonderful.