SINGAPORE: Oil shipping rates extended their rally on expectations of a tightening in global tanker supply from wider US sanctions on Russia’s fleet and traders’ demand for ships to load Middle East oil for Asia, industry sources said on Wednesday.

On Tuesday, Shell booked three Very Large Crude Carriers, capable of carrying up to 2 million barrels of oil, at the rate of Worldscale 70 to load Middle East crude in early February and Chinese refiner Shenghong Petrochemical booked two VLCCs for the same loading period at the same rate, a shipbroker said.

Worldscale is an industry tool to calculate freight charges.

For comparison, China’s Unipec earlier booked two VLCCs for late January loading from the Middle East at WS51-52.25.

Traders are expected to seek more tankers to load crude from Saudi Arabia in February, which could drive freight rates higher, the shipbroker said.

The robust demand pushed the rate for a VLCC on the Middle East to China route, known as TD3C, higher to WS70.45 on Wednesday, up WS10.75 from the previous day, according to two shipbrokers and a trader.

This is equivalent to a 15% rise, bringing the cost to charter a supertanker on that route to $4.1 million, said the second shipbroker.

Supertanker rates on other routes have seen similar increase, he added.

The rate for VLCCs from the Middle East to Singapore rose by WS10.45 to WS71.80, while the rate for West Africa to China gained WS9.23 to WS70.67, he said.

Oil inches up, but uncertainty over sanctions impact caps gains

Shipping crude from the US Gulf to China will now cost $8.715 million per voyage, up $1.895 million from Tuesday, he added.

Surging freight costs and spot premiums for Middle East crude are squeezing Asian refiners’ margins.

Complex refining margins in Singapore, the bellwether for the region, slumped to $1.15 a barrel, from $4.69 on Jan. 9, before the sanctions were announced, LSEG data showed.