Global oil and gas war intensifies! Asian high prices driving cargo ships to turn around, triple surge in crude oil, LNG, and VLCC freight rates.

As the Middle East war enters its second week, large energy buyers in Asia, eager to ensure supply, are hustling to grab cargo from ships carrying core fuels such as oil and liquefied natural gas (LNG) that were originally heading to other regions by offering higher prices. Undoubtedly, in the short to medium term, this signal of "forcibly rewriting cargo flows" itself is a typical catalyst for further pushing up the highest international oil prices since the outbreak of the 2022 Russia-Ukraine conflict, and VLCC (Very Large Crude Carrier) energy transport costs are also fully likely to continue to rise significantly, with the increase possibly even more "violent" than the oil prices themselves. According to the latest compiled ship tracking data from agencies, five large oil tankers loaded with energy goods such as diesel and aviation fuel were originally sailing westward in recent days, but then quickly turned around and are now heading towards East Asia. Three batches of cargo ships are from India, while the other two batches left the Persian Gulf region last week before the actual closure of the Strait of Hormuz. As shown in the figure above, the large Brest tanker was originally heading to Rotterdam, then turned around, and is currently showing Singapore as its destination. These 180-degree turns in ship routes highlight the escalation of the Middle East war sparked by the military conflict between the US and Iran, and the urgent need for oil resources and natural gas fuel that cannot be obtained from the Persian Gulf is causing particularly severe economic impacts on Asia - the largest energy importing region globally. It is understood that China, as well as Japan and South Korea, the three major economies with the strongest energy demand, have requested refineries to cut exports, and long lines have formed at gas stations across Asia for several days. In recent days, fuel prices in the Asian market have continued to soar mainly because processing industries across the region have significantly reduced operating rates and capacity as a result of an oil shortage, and advanced refineries in the Middle East have cut production due to running out of storage space. Some factories in Asia had planned to undergo quarterly maintenance before the outbreak of the war, further exacerbating the tight supply situation for refined oil products. Large refineries in Asia typically purchase crude oil according to their equipment maintenance plans, meaning they will not be able to easily increase production in the short term. Is the rise in international oil prices unstoppable? Is the upward trend in LNG even stronger? Oil prices surged to near $120 per barrel on Monday, up nearly 80% since the outbreak of the US/Israel-Iran war, with the market interpreting it as a "higher inflation + more pessimistic economy" stagflation shock. If prices continue to rise, global central banks such as the Federal Reserve may be forced to maintain tightening policies to curb inflation even as economic growth slows, putting the world into a long-term fierce battle between stagflation. At least in the short to medium term, the signal of "forcibly rewriting cargo flows" itself is a typical catalyst for further pushing up oil prices, with the core logic behind it not just due to major oil-producing countries in the Middle East reducing supply due to limitations in the Strait of Hormuz, but the market has shifted from "concern about supply interruptions" to "actual spot commodity competition": reflected in Asian buyers high-priced withholding of sources to replace Middle East supplies via the Strait of Hormuz, China requesting refineries to cut exports, Asian diesel and aviation fuel spot prices rising, and refinery profits hitting nearly four-year highs. For commodity traders, this means not just the inflated paper oil futures, but also the prices of marginal barrels and marginal refined oil sources that traders have long focused on are also being increased, meaning that the oil market is entering a positive feedback loop of "spot squeeze - regional price spread widening - crack spread expanding - then supporting oil prices in reverse". On the LNG front, the upward momentum is even more "sharp," as it depends more on the spot adjustment of LNG by sea, with less substitutability than oil. The halt in supplies from Qatar led to a single-day surge of about 50% in European natural gas prices. From a trading perspective, liquefied natural gas is not currently trading based on the average supply-demand logic, but on the risk of end-of-line shortages: as long as key supplying countries suspend production, change shipping routes, and face tight supply from ships, prices are likely to continue to rise. With passage through the Strait of Hormuz blocked and supplies from Qatar interrupted, more LNG cargoes have been diverted to Asia; Asian buyers account for over 80% of Qatar's LNG shipments, and Qatar is the world's second-largest LNG exporter. As a result, the logic of seizing goods has driven European TTF natural gas futures prices to soar by 50% in a single day, and Asian benchmark LNG prices have also surged by nearly 40%, forcing buyers in India, Bangladesh, and other countries to snatch LNG spot cargoes from European countries at prices of over $20 per million British thermal units. Will VLCC shipping costs continue to soar? VLCC shipping costs are also fully having the drive to continue to rise significantly, even more violently than the increase in oil prices themselves, with the core logic being the Strait of Hormuz risk directly inflating war and shipowner risk premiums; secondly, Asia, forced to look for goods from further regions as alternative to oil, has pushed up demand per tonne by sea miles; and thirdly, some ships are avoiding the Middle East, taking longer routes, or being replaced by smaller ships, further compressing effective capacity. Statistics show that the daily rental rates for Middle East-China VLCCs once exceeded $400,000, reaching a new historical high; Bloomberg also reported that the transportation costs from the Middle East to China amounted to about $20 per barrel, far higher than last year's roughly $2.5, and the transportation costs of VLCCs from the US to Asia have also reached record highs. In other words, if this round of oil and gas price hikes continues, oil prices, natural gas, and VLCC freight rates are not independent of each other but part of the same chain: supply shock - spot purchases - tight shipping capacity - further raising the to-land costs. For VLCC shipping costs, several core variables that could lead to a moderation in prices include - a large-scale release of reserves by the G7, a partial restoration of the passage through the Strait of Hormuz, or high prices triggering demand destruction, which could lead to a temporary withdrawal of prices; but within the current framework, the direction still leans towards further upward movement.