Saudi Oil Bypasses Hormuz as Strait Traffic Hits New Lows

Just six commodity vessels crossed the Strait of Hormuz on Monday. That is up from Saturday's three and Sunday's two, but still close to zero for large-scale shipping. No VLCC supertankers or LNG carriers were visible in the transit data as stalled talks between Washington and Tehran kept the Gulf's main energy corridor effectively closed.

Saudi Arabia has begun working around the blockage. The kingdom is privately offering Arab Medium and Heavy crude cargoes through ship-to-ship transfers off Fujairah in the UAE, several traders said. Asian refiners can collect September barrels without sending their own tankers into the strait. Saudi Aramco loaded at least three VLCCs in the Gulf last week – the Malaysia Prosperity, Algeria Prosperity and Singapore Prosperity – all owned by Sinokor. Those cargoes were offered to Asian buyers via ship-to-ship transfers off Fujairah on a prompt basis.

The bypass strategy has pushed VLCC rates into extraordinary territory. Assessed earnings for a Middle East-to-China voyage topped $500,000 per day as the flow of vessels moving out of the Gulf slowed to a trickle. Fixing costs for inside-Hormuz cargoes jumped to roughly $31 million per voyage, seen this week with the Mongolia Prosperity supertanker. Several more Saudi-origin VLCCs were booked privately, without broker involvement, shipping sources said.

Shipping rates are rising across Asia even though the number of empty VLCCs is at its highest in five years. Only 372 supertankers are currently loaded against 592 tankers ballasting, meaning the rate spike is purely a function of chokepoint risk, not fleet tightness.

ICE Brent traded at $91 a barrel on Wednesday. President Trump posted on Truth Social that no talks are scheduled between the U.S. and Iran, after the 60-day Memorandum of Understanding signed June 17 expired without extension. Trump also threatened to bomb Oman, warning the Omani government against obstructing negotiations with Iran. Axios reported that behind the bellicose posturing, U.S. officials are still talking to Tehran through Iraqi mediators, though no new arrangement has emerged.

The Houthis claimed a third drone attack in two weeks on Saudi Aramco's 400,000 b/d Jizan refinery. The facility was already offline until at least September after earlier damage. That attack pushes even more Saudi crude toward Mediterranean loading points, traders said.

China's shipping giants COSCO and CMES, which previously carried half of the country's Middle Eastern crude imports, have stopped sending tankers through both Hormuz and the Bab el-Mandeb strait. They have redeployed their fleet of more than 100 VLCCs to collect Gulf barrels from Fujairah and Oman instead.

Libya's National Oil Company said foreign investment of up to $40 billion is needed to lift production to 2 million b/d by the early 2030s. International majors are returning despite persistent drone attacks and recurring protest closures.

Oil prices also had support from tightening U.S. product markets. The U.S. diesel crack spread hit an all-time high of $102 a barrel as middle distillate prices rose quicker than crude in five of the last six sessions. U.S. distillate inventories are at their lowest seasonal level since 1996 despite refineries maximizing diesel output. Energy Secretary Chris Wright said the Trump administration would soon unveil measures to boost refinery throughput, even though U.S. plants are already running at record rates.

Chevron announced an oil and condensate discovery in Block 0 offshore Angola, hitting 91 metres of net oil pay in the Lower Congo basin. Shell lost its litigation against environmental activists in South Africa, with the Constitutional Court ruling it could not renew its offshore exploration rights.

Beijing plans to lift natural gas storage above 13% of annual consumption and expand pipeline-import capacity to 114 Bcm per year by 2030. Underground gas storage has more than doubled to 54 Bcm since 2020.

For shipping companies, the surreptitious transits and Fujairah transfers have become the most lucrative freight trade in the current market. The question is whether the bypass arrangements can scale if the Hormuz closure persists through the fourth quarter.