Brent falls despite Iran’s mine claim as Gulf tanker freight eases

Supertanker earnings have slipped 8.8% in two weeks from a $1.41 million a day peak, and the Gulf of Oman route is down 28%. The Baltic Exchange's week 44 tanker report, due Friday 30 October, shows whether the easing holds.

On Thursday the Islamic Revolutionary Guard Corps (IRGC) Navy said three tankers had exploded after hitting mines in the Strait of Hormuz. Brent futures still fell. By 1545 GMT the contract was down $1.59, or 1.38%, at $113.73 a barrel, Reuters reported. Hopes for peace talks between the US and Iran outweighed the claim.

Qatari mediators have presented Iran with a new draft deal to end the war, Reuters reported, citing an official briefed on the talks. Trump said on Wednesday that Vice President Vance's letter to Iran concerned medical supplies, not a revival of talks, CBS News reported. An official told CBS News that Tehran's reply is expected by Saturday.

Houthi missile strikes and fears of a US attack after the 3 November midterms limited the decline.

The mine claim did not lift the market, because supertanker freight is falling from its peak. The five year inflation breakeven has risen 16 basis points since 13 October. The rate five years forward fell on 22 October and has recovered only part of that drop.

What has been reported

The IRGC says the tankers took an "unauthorised" route south of the strait, Reuters reported. AFP reported that Iran's army later reported a fourth tanker on fire east of the strait. US Central Command says all mines in the primary transit routes have been cleared.

The UK Maritime Trade Operations centre logged one fire on 29 October, in incident 185, nine nautical miles north of Khasab, Oman. Regional authorities identified the vessel as a dhow. It sank, and its crew were evacuated.

UKMTO describes each strike on 20, 21, 22 and 23 October as an "unknown projectile". The war began on 28 February. Brent spot rose from $71.32 on 27 February to $77.24 on 2 March, the first trading day after it started. It reached $118.09 by 18 March.

The physical market took the heavier blow in early October. Dated Brent, the price of cargoes loading 10 to 30 days ahead, touched more than $154 a barrel on 5 October. That is Nikkei's report, from LSEG data. Its premium to Brent futures widened to a record of more than $50 that week.

Futures barely followed. Nikkei attributes that to persistent expectations that oil flows through the strait will recover.

The US Energy Information Administration (EIA) publishes a separate benchmark, Brent spot. It averaged $124.83 across the 19 trading days from 1 to 27 October. The EIA's Short-Term Energy Outlook of 6 October put the fourth quarter average at $105. That forecast was completed on 1 October. Spot is running about $20 above it.

Tanker freight falls from its peak

Freight is easing from its peak. The Baltic Exchange put round trip earnings for a standard supertanker (VLCC) at $1,287,851 a day in the week to 23 October. That is the Gulf to China crude run, called TD3C. In the week to 20 February it was $151,208, so earnings are now 8.5 times that level.

They peaked at $1,412,594 in the week to 9 October, 9.3 times February. They have fallen two weeks running, 8.8% in total.

The surge came late, and it came six months into the war. From March to August the route paid about two to four times February's level. Earnings then more than doubled in the four weeks to 18 September, from $585,000 to $1,212,503 a day. Freight moved months after the war began, and it is now easing.

The route outside the strait is falling faster. The Gulf of Oman to China run, called TD34, loads outside the strait. It paid $912,660 a day in the week to 9 October and $656,587 in the week to 23 October, down 28%.

Refined product freight is not easing. A large LR2 product tanker earned $313,200 a day on the Gulf to Japan run, up $28,600 on the week. The Gulf to UK Continent run paid $336,400.

Product stocks are the reason it matters. The EIA says East Coast distillate stocks stood 32% below the five year average in September, and US diesel averaged $6.29 a gallon.

What inflation markets show

Inflation markets are less alarmed than the headlines, but not calm. The 5 year breakeven is the inflation rate implied by the gap between nominal Treasury yields and inflation-protected yields. It rose from 2.33% on 13 October to 2.49% on 28 October, FRED data show. The 10 year breakeven gained only 5 basis points, to 2.38%.

The 5 year rate five years forward fell 15 basis points on 22 October, to 2.19%, and has since recovered to 2.27%. A rise at the near end with a flat far end says the market treats this as a shock, not a lasting change. A new rise in the forward rate would say otherwise.

The Federal Reserve held rates at 3.75% to 4% on 28 October by a 10 to 2 vote. Lisa Cook and Beth Hammack preferred a quarter point rise, and the statement says inflation remains elevated.

The strongest counterargument is that the mines are real and the strait stays shut. Nikkei's explanation for the futures lag then fails. Futures would reprice toward the physical market, and the early October gap of more than $50 would reopen. Freight is the early warning. A rise in TD3C and TD34 together would signal it before the futures screen does.

A refiner buying Dated-linked barrels carries the spread, which a futures hedge does not cover. A charterer fixing a Gulf of Oman lifting and one loading inside the Gulf are pricing the same mine risk at different rates. A shipowner weighing a transit makes a crew safety call. Freight trends, not single bulletins, carry the signal.

The next freight report

On Friday 30 October the Baltic Exchange publishes its week 44 tanker report. TD3C has fallen from $1.41 million to $1.29 million in two weeks.

A print below $1.2 million would confirm the squeeze is draining, and a print above $1.4 million would reopen it. The EIA's next Short-Term Energy Outlook, due 10 November, has to explain a gap. October's spot average, near $125, ran $20 above its $105 fourth quarter forecast.