The cost of chartering a very large crude carrier to transport 2 million barrels of U.S. crude from the U.S. Gulf Coast to China in November jumped to $80 million this week, making the deal uneconomic and closing the arbitrage window for the trade, according to data from shipbrokers and traders tracking the market.
Asian refiners turn to alternatives
Record freight costs have prompted Asian refiners to consider switching to UAE Murban crude and alternatives from Latin America. Potential demand pushed the Murban premium back above $11 a barrel over Dubai prices on Thursday.
The cost of shipping U.S. crude to Asia reached $40 a barrel, compared with $8.60 before the war involving the United States and Israel against Iran broke out in February, equivalent to about half the price of a West Texas Intermediate futures contract. An oil analyst at a trading company said Murban crude was about $2 a barrel cheaper than WTI after accounting for the cost of delivery to Asia.
This sharp rise in freight rates translates into higher costs for delivering crude to Asian refineries.
Attempts to cut transport costs
U.S. oil sellers are expected to lower their offers to remain competitive globally, while some trading companies have begun using smaller tankers. Japan’s Cosmo Oil provisionally chartered a very large crude carrier for $81 million to load U.S. crude between Nov. 19 and 21, while attempts by South Korea’s SK Energy and Trafigura to book tankers for between $76 million and $77 million failed.
Trafigura chartered an Aframax tanker capable of carrying about 600,000 barrels for $24 million to load U.S. oil bound for Japan on Nov. 1. A $27 million Vitol deal to ship crude to South Korea in early November was not completed.
Tanker rates jump more than 300%
Goh said freight rates for very large crude carriers on the U.S. Gulf Coast-to-Asia and Fujairah-to-East routes had jumped by more than 300% since mid-August, attributing the increase to ship-to-ship transfers to circumvent the closure of the Strait of Hormuz and rising flows of Atlantic Basin crude to the Far East, which had reduced the number of available tankers.
Traders expect Asian refiners to increase purchases of Murban crude or Argentina’s Medanito crude, although some buyers may continue paying a premium for U.S. crude to diversify supplies amid the risk of disruptions to flows through the Strait of Hormuz.
