Shipping U.S. Oil to Asia Hits $40, Pushing Traders Toward Smaller Tankers
Key Facts
The cost of shipping U.S. crude to Asia reached $40 per barrel, according to a Reuters report published on October 9, as some trading companies began switching to smaller tankers to counter rising transport costs. That compares with $8.60 per barrel before the U.S.-Israeli war on Iran began in February, increasing the cost of transporting U.S. crude to Asian buyers. The agency cited traders and a shipbroker as saying some trading companies had already begun switching to smaller vessels as freight rates rose. June Goh, an analyst at Sparta Commodities, said rates for very large crude carriers on the routes she tracked had "jumped by more than 300% since mid-August." The increase cited by the analyst in the report covered tanker voyages from the U.S. Gulf to Asia, as well as eastbound voyages from Fujairah.
Transport costs affected the comparison between U.S. crude and grades closer to the Asian market, with Reuters quoting an analyst at a trading company as saying the UAE's Murban crude was cheaper than West Texas Intermediate on a delivered basis. The difference was about $2 per barrel in Murban's favor, according to the comparison in the agency's October 9 report, based on delivery to Asia. In the vessel chartering market, SK Energy and Trafigura struggled to secure very large crude carriers despite the size of their offers, according to a source familiar with the matter who spoke to Reuters. The source said the companies' attempts to book those tankers with offers ranging from $76 million to $77 million had failed. The unsuccessful bookings coincided with some trading companies beginning to switch to smaller vessels and rising tanker rates on supply routes to Asia.
In Taiwan, CPC said in a statement dated October 13 that it was adjusting schedules for large oil tankers and liquefied natural gas carriers daily in response to market needs and storage capacity. The company said vessel schedules were under continuous review to align cargo movements with requirements and the available capacity to receive and store them. Alongside the schedule adjustments, it said it was coordinating with suppliers to shift cargo loadings to other ports as part of measures to ensure crude reached Taiwan. Its response also includes buying additional cargoes from areas not subject to the blockade, according to the same statement outlining its supply arrangements. The company said it was "actively coordinating with suppliers to shift loading to other ports to ensure oil cargoes reach Taiwan smoothly, and purchasing additional cargoes from areas not subject to the blockade."
Transport bottlenecks and rising costs coincided with a recovery in Gulf crude exports during September, according to the International Energy Agency's October report. The agency said crude exports from Gulf producers rose by 4.4 million barrels per day to 13.9 million barrels per day, led by Saudi Arabia. Ship-to-ship oil transfers in the Gulf of Oman helped increase total flows through the Strait of Hormuz as part of arrangements to transport supplies from the region. Those flows increased by 3.7 million barrels per day during September to 10.9 million barrels per day, according to the agency. Meanwhile, ship-to-ship transfers used to circumvent the closure of Hormuz, along with an increase in long-haul voyages from the Atlantic Basin to Asia, reduced the number of available tankers, according to the Reuters report.
Pressure from freight rates and delivered crude costs extended to refining profitability, with diesel crack spreads at European refiners declining, according to the International Energy Agency. The agency said in its October report that those margins had fallen from $100 per barrel to around $60 per barrel by early in the month. The decline came as freight rates and the cost of crude delivered to refineries rose, according to the report tracking developments in oil and refining markets. The agency warned that a further deterioration in profitability could prompt marginal refiners in Asia and Europe to cut runs for economic reasons. It added that potential run cuts at those refineries could further tighten the market before year-end if pressure on refining profitability persisted.
In upcoming loading bookings, Reuters reported on October 9 that Japan's Cosmo Oil had provisionally chartered a very large crude carrier to load U.S. crude in November. The provisional charter cost was $81 million for a loading window scheduled for November 19 to 21, according to the agency. In global refining activity, the International Energy Agency expected refinery runs to reach a seasonal low in October before rising again toward year-end. The agency put expected October runs at 81.3 million barrels per day in estimates included in its oil market report for that month. It then forecast global refinery runs would recover to 84.6 million barrels per day by year-end, while warning of the impact of deteriorating profitability on runs at marginal refineries.