In the late afternoon of the 19th of April 2020,  the crew of the super tanker Caribbean Glory was  

sent an unusual set of instructions. Their  voyage orders, which meticulously detailed  

the instructions for their next route, told them  to laden themselves with approximately 200,000  

barrels of crude oil and then go nowhere. The  next few hours would be the most profitable for  

the global oil tankers ever. Charter rates for  a very large crude carrier like the Caribbean  

Glory typically run between $40,000 and $80,000  a day. But because of a strange combination  

of circumstances for about 72 hours, people  across the world were willing to pay more than  

$300,000 per day in lastminute bids. Now,  you might naturally expect that this was  

because oil prices were unusually high because of  unforeseen demand, but it's actually the opposite.  

On the 20th of April, global crude oil prices went  into the negatives. Oil companies were literally  

paying to give away their liquid gold. The reason  was simple practical economics. On the surface,  

there was a complex web of financial  instruments, macroeconomic factors,  

and international agreements. You probably even  remember this day and the stories that came out  

about rogue market traders making millions of  dollars from the absurdity. But behind the scenes,  

the reality was shockingly simple. The world  only has so much capacity for oil and its refined  

products. Once it's pumped out of the ground,  it fills up this bucket until it's lit on fire  

somewhere or turned into hydrocarbon products. In  order to maximize profits, there's a big incentive  

for companies around the world to keep this bucket  as small as possible. Excess capacity is more  

upfront investment, more ongoing maintenance,  and less efficient operations. It's a system  

that just barely works until it doesn't. The 2020  global pandemic slowed down all the ways that oil  

was burned up, but the production side simply  couldn't react as fast. The delicate balance  

was thrown out and global capacity was at a real  risk of overflowing. It's generally frowned upon  

to dump oil in the ocean. So, the people that were  holding on to this stuff had three options. Outbid  

everybody else for storage. pay someone to take it  off their hands or hire container ships to hold on  

to it and sail them around in circles for a few  days until things got back to normal. Clearly,  

this was an exceptional example, but it revealed  something about a system that our modern global  

economy takes for granted. In the oil shipping  business, you need to remember one thing above  

all else. Bad news is good news. It's easy  to think that oil tankers and cargo ships are  

effectively in the same business. They both  navigate the world's oceans, moving valuable  

cargo from where it's produced to where it's  consumed. They both pull the same kind of shady  

business practices that totally honestly means  their ships operate out of Liberia or Panama.  

And they even kind of look the same. But that's  really where the similarities end. Oil transport,  

especially crude oil transport, is a fundamentally  different business to any other type of shipping.  

The biggest container shipping companies  are completely different from the biggest  

oil shipping companies. And despite the huge  economic benefits to scale, even the largest  

companies in the oil game have a relatively  small slice of the pie. A report conducted by the  

Congressional Research Service found that the vast  majority of oil tankers, including super tankers,  

were independently owned and operated. Often these  ships have the owner or owners directly commanding  

the vessel, living aboard it alongside crew.  This is radically different from the generational  

family empires that control the containership  market. Now, exactly how many of these independent  

vessels there are out there roaming the world's  oceans, we have no idea. Privateier fleets are  

by their very nature private. But there are three  major reasons why the global oil shipping fleet  

has become smaller and more fragmented at the  very same time that the container shipping fleet  

has become larger and more consolidated. First  and foremost, oil is just a riskier business.  

The first thing that most people outside of  America think about when they hear Exxon is not  

the energy company, but rather the Valdez oil  spill. On top of being an immensely expensive  

disaster to clean up, it did genuine lasting  reputational damage to the company. In good times,  

oil tankers run on razor thin margins. So, for  a lot of large companies, it just became easier  

to outsource the work to the lowest bidder.  Oil shipping is also different from goods  

shipping because it's not the cheapest option.  The most cost-effective way to move goods over  

long distances is on container ships. The most  cost-effective way to move oil over long distances  

is through pipelines. Profitable routes between  major suppliers and major consumers usually build  

up pipelines instead of relying on ships. The  pipelines are a significant upfront investment,  

but they pay themselves back with transport  costs that are on average 80% lower than even  

highly efficient bulk carriers. Markets throughout  the major economic centers of Europe, Asia, and  

North America, and now comprehensively supplied  by oil and gas pipelines, which means ships are  

only there to pick up the slack around the edges.  A few decades ago, this was a very different game.  

The global oil trade was not as mature and there  was room for larger ships to operate on reliable  

routes. This is what gave birth to ships like the  NO Nevice, also known as the Seaw Wise Giant. At  

almost half a kilometer long, it was the largest  and longest self-propelled ship in history. Today,  

its job can just be done more economically by a  pipeline, so it scrapped back in 2010 as a relic  

of the market that just doesn't exist anymore. And  that might give you a hint as to the third reason  

why the oil trade has become progressively more  dominated by smaller independent players. The real  

money in this industry is no longer made in scale.  It's made in flexibility. Operational flexibility,  

time flexibility, and yes, even some legal  flexibility. The rates that ship charge  

to move oil around isn't actually that closely  correlated with oil prices themselves. It depends  

much more on volatility. If the market for oil is  being disrupted by sanctions, wars, trade deals,  

or destroyed infrastructure, ships can respond  quickly where oil pipelines need to be planned  

years in advance. The more turbulent the global  market for oil is, the more money ship operators  

make. The day prices went negative in 2020 was  just one example. A report by Lloyds found that  

after it was announced that ships would no longer  be attacked when passing through the Red Sea,  

tanker stocks actually fell because they could no  longer charge higher prices. In the oil shipping  

industry, bad news is good news. Thinking of it  another way, the oil market is like pouring a  

concrete foundation. The levels between suppliers  and consumers should be nice and even. Ships are  

like the TRS. The more uneven the foundation is,  the more valuable they become. Now, obviously,  

another aspect of the ship's value is what kind  of legal gray areas they're willing to operate  

in. Thanks to sanctions on countries like Iran  and Russia, global oil freighters are having some  

of their best years ever. Ships ignoring these  international restrictions can supply markets like  

China and India and make three to four times  what they normally would for the same trip.  

Privately operated ships can take on crude oil  in Iran for as low as $20 a barrel below market  

prices. From here they can make their way down the  straight of Hormuz along the Indian Ocean and into  

the Malacca Strait. This is the busiest shipping  lane in the world which lets them pull some  

fun tricks. They can pull up alongside another  non-sanctioned vessel and transfer the oil over to  

them to be sold without restriction. Amongst all  the traffic passing through this narrow channel,  

such activity is incredibly hard to track, and  that's assuming that the local authorities even  

wanted to. Singapore is also conveniently home to  some of the largest oil refineries in the world,  

and a lot of businesses there stand to make  a lot of money by not looking too closely at  

where their imports come from. If all of that  is too difficult, the tanker could just sail  

directly to the port of Yantai in Shangdong, the  unofficial hub of the unofficial oil trade. Here,  

a new industry has popped up called teapot  refineries. These are small off-the-books oil  

refineries that process undocumented oil and then  sell it to local industries at a steep discount.  

The more restrictions and instability there is  in the world, the more lucrative this becomes.  

Russia's shadow fleet has been well documented,  skirting these restrictions, and they aren't  

even trying too hard to hide it. A lot of buyers  simply don't care about the geopolitical events  

happening halfway across the world from them.  If they can get oil at below market prices,  

they are going to take that opportunity. Now,  although they might not like to publicly admit it,  

even fully legitimate oil shipping companies based  out of America and Europe are benefiting from this  

as more and more of the world's independent  operators move their capacity to serve more  

lucrative shadow routes. They can demand more from  the legal voyages left behind. It also increase  

the value of their fleets. Most independent  grey market oil shippers do not have the money  

to buy a brand new ship, so they're buying them  secondhand. Oil freighters have a typical service  

life of around 25 years. After that, they're  normally sold for scrap to yards in Southwest  

Asia. Beaches like Alang, which we've already  made a video about, usually break down between  

25 and 140 oil tankers in a given year as they  fall into disrepair. But for the last 4 years,  

they've been averaging just seven. Ships are  not lasting longer. They're just finding new  

buyers that can keep them just sea worthy enough  to cash in on these new routes. This is combining  

with the boon in new cargo ship production,  which means there are less oil tankers being  

made in the world's yards. All of this adds  up to mean that even old rundown freighters  

have become a very valuable asset, a clear sign of  how much money is being made in unstable markets.  

In their report, even the US government basically  admitted that there wasn't much they could do to  

stop this from happening because the more they  cracked down on trade they didn't approve of,  

the more lucrative it became. However, there is  a higher power that all men of the ocean must  

answer to. An almighty force that's bigger  than laws, conflict, and morals. That is,  

of course, insurance. All oceangoing vessels  need to be insured. And like all insurance,  

the higher the risk, the higher the premiums.  Old, poorly maintained ships operating along  

unofficial routes laden with thousands of tons of  oil in a conflict-prone area are about as risky  

as it gets. Nobody wants to do business with an  uninsured ship. Traders don't want their oil to  

be at risk, and ports don't want to be financially  responsible for an oil spill. So, for a while,  

this has been one of the last avenues to control  this trade. Most marine insurance companies are  

based in one of four locations: London, New York,  Omaha, or Zurich. But new providers are emerging  

from countries like India and Russia to provide  this protection and profit where the traditional  

firms are not allowed to. What remains to be  seen is what will happen if there is a major  

incident in the waters of any country they do not  consider friendly. Now it's fun to speculate but  

the lesson here is that in economics the more  restrictions are placed upon something the more  

profitable it becomes. The oil shipping industry  has had its best years ever because global trade  

has had some of its worst. Watch this video next  to see how mega freighters are dealing with almost  

exactly the opposite problem. And don't forget to  subscribe for more micro stories with big impacts.