Module 3 · Midstream: moving the barrel

Tankers, freight and the straits that matter

Level 2 · Working knowledge 10 min read 4 questions

Most crude crosses an ocean. Ship size decides which ports and canals are available, freight is a live component of the delivered price, and a handful of narrow passages carry a large share of the world's seaborne oil.

Oil's geography of supply and its geography of demand do not match, so most of it goes to sea. The shipping market is a separate industry with its own cycles, and freight is not a footnote to the oil price - it is part of the delivered price, and it moves independently.

Ship classes, and why the names matter

Tanker classes are defined by size, and size determines which ports, canals and straits a ship can use at all. The names are commercial conventions rather than a standard, but they are used consistently enough to be a working vocabulary.

Freight is part of the price

A cargo is normally quoted either FOB - free on board, priced at the loading port, with the buyer arranging and paying for shipping - or CIF/CFR, priced delivered, with the seller arranging it. The difference between the two for the same cargo is the freight, the insurance and the risk of the voyage. When freight rates spike, long-haul barrels become relatively less attractive than short-haul ones without any change in the oil itself, and trade routes reshuffle.

The chokepoints

A chokepoint is a narrow passage through which a large share of seaborne trade must pass, with no quick alternative. Oil has a small number of them, and they are the most studied physical risk in the commodity.

Strait of Hormuz

The exit from the Persian Gulf. The single most important passage for seaborne crude, with limited pipeline bypass capacity.

Strait of Malacca

The shortest route between the Indian Ocean and East Asia, and therefore the main artery for Middle East crude heading to Asian refiners.

Suez Canal and the SUMED pipeline

The short route between the Gulf and Europe. The canal has a draft limit, and the parallel pipeline exists precisely because of it.

Bab el-Mandeb

The southern entrance to the Red Sea, and therefore the approach to Suez.

Turkish Straits, Danish Straits, Panama Canal

Regionally critical rather than globally, but binding for particular trades.

This site keeps a general treatment of the idea at chokepoints, which is worth reading alongside this lesson: the same logic applies to concentration in refining and in processing, where the chokepoint is a plant rather than a strait. Lesson 15 returns to this.

Ship-to-ship transfers and opacity

Cargoes are sometimes transferred between vessels at sea, legitimately - to break a large cargo into parcels for shallow ports, or to top up a VLCC - and sometimes to obscure origin. Transponders can be switched off, documents can be re-papered, and blends can be relabelled. The result is that seaborne flow data is an estimate built from satellite tracking and port records, not a measurement. Treat single-source flow figures accordingly.