Risking two billion: Texas oil trader buys own tanker fleet

Fighting in the Middle East is driving US fuel prices to record highs. A Texas oil trader is now taking the situation into his own hands, taking a $2 billion risk on buying used supertankers.

In the USA, the massive rise in fuel prices has been causing discontent for months. Recently, the average price for a gallon of diesel (i.e. 3.785 liters) has moved down slightly. However, it still remains close to record levels. While the Trump administration hopes to revive oil shipments through the Strait of Hormuz, an oil trader from the US state of Texas is taking matters into his own hands.

According to a report in the Financial Times (FT), the CEO of Dallas-based PIF Energy, Ben Morrow, wants to buy supertankers worth $2 billion. “Everything is driven by capitalism, you have to make money to keep the business going,” Morrow explains his unusual step to the “FT”. He really wants to help the world: "Let's make sure the oil flows." Historically, traders have chartered ships from shipowners rather than owning them themselves.

His plan is to transport oil from Iraq's state oil agency and Saudi Aramco to refineries in India and China. To do this, he wants to put together a fleet of older ships that can each carry up to two million barrels of oil. They will be loaded at the port of Basra and transported through the Strait of Hormuz to the Arabian Sea and beyond. Morrow plans to buy a total of 15 ships, but he doesn't have them all together yet.

His unusual move to buy used tankers underscores the desperation of some traders to secure scarce shipping capacity and keep oil flowing. Prices have recently risen significantly. Due to the need for ships that are ready for immediate use, prices for used ships are currently unusually exceeding prices for new ships, reports the "FT". The reason for this is the record high freight rates for cargoes from the Middle East, which reach up to 1.3 million US dollars per day for a supertanker.

The average price for a 15-year-old supertanker, one of the largest tanker classes, is around $160 million, according to ship broker Clarksons. That's a 44 percent increase over the last three months, compared to $131 million for new construction. Many buyers in the market are Middle Eastern oil companies looking to build their own fleets rather than rely on shipowners who may find transiting the strait too risky.

Regardless, the record prices have also attracted financially strong newcomers such as the trading company PIF to the market. A person familiar with the matter told the FT that PIF's ships were accompanied by a "first-class security team." It was approved by the US government to ensure security on the way through the strait despite the war.

In the Iran war, which has been going on for more than six months, the Strait of Hormuz has been the scene of numerous battles. Tehran has largely blocked the strait, which is important for world trade, and in return the USA imposed a naval blockade of Iranian ports.

Tehran requires ships to have a permit for passage. The Iranian leadership rejects a return to free passage like before the war began at the end of February. Iran also wants to charge fees for ship passage. The USA and the countries in the region reject this.

Recently, according to analyzes by industry experts Kpler and Marisks, the volume of oil transports through the Strait of Hormuz has increased significantly again. The seven-day average for oil exports from the Gulf states was 18.3 million barrels per day on September 30th. On 14 days in September the value exceeded the pre-war level, said Kpler.

The experts attribute the increase, among other things, to an expansion of a so-called “shuttle fleet”. The term refers to tankers that move back and forth in the strait protected by the US Navy, bringing oil from loading stations in the Persian Gulf to waiting tankers outside.