Transporting a cargo of oil from Houston to Asia has added about $26 to the cost of each barrel, equivalent to about $52 million for a single cargo and nearly a quarter of the price of West Texas Intermediate futures, as shipping costs surge and very large crude carriers remain in short supply, threatening the economics of some long-haul deals.
High costs are prompting refiners to seek geographically closer supplies as fuel markets face severe shortages. Saad Rahim, chief economist at Trafigura, said oil had never been this expensive to transport, noting that the rising share of freight costs in the crude’s total value is increasing the impact of logistics on the market.
Record earnings for oil tankers
Earnings for very large crude carriers on the main route for transporting crude from the Gulf to China have topped $1.2 million a day. Each vessel in this class carries about 2 million barrels, while pricing pressure has spread across tanker classes worldwide.
Average earnings for Suezmax tankers, which have a capacity of about 1 million barrels, rose to more than $300,000 a day, levels usually associated with voyages to and from war zones. The market capitalization of the world’s largest oil tanker companies also climbed to a record close to $70 billion during the week.
Oil traders and refiners, meanwhile, are facing mounting pressure as concerns grow that transport costs could make refining some cargoes unprofitable, potentially curbing purchases of distant-source crude despite strong demand for diesel and gasoline.
Refiners turn to closer supplies
Data from Vortexa showed crude flows from the United States to Asia declining in recent weeks as shipping costs rose to about three times their previous levels. A Japanese refinery recently bought a cargo of Alaskan crude, even though it is not a grade typically used extensively by Japanese refiners, benefiting from the shorter voyage compared with other supplies.
In Europe, the search for nearby barrels has strengthened physical crude prices. Dated Brent rose above $131 a barrel, while Brent futures peaked at nearly $110 during the week.
European refiners are seeking to replace Middle Eastern supplies after Saudi Arabia told European buyers that no cargoes would be allocated to them under long-term contracts for next month. Angolan crude sales, which typically involve voyages of thousands of miles to reach buyers in China, have slowed as supplies requiring long voyages become less attractive.
Tanker shortages reshape shipping patterns
A key factor behind the increase in rates is the acute shortage of very large crude carriers available for hire. Brokers and industry officials said some areas have had only a very limited number of available vessels during certain periods.
The shortage has prompted Asian refiners to use Aframax tankers, which can carry about 700,000 barrels, to transport some U.S. cargoes instead of the very large crude carriers typically used on long-haul voyages. Some cargoes from Atlantic ports, including Brazil, are also being loaded onto two Suezmax tankers with capacities of 1 million barrels each, rather than onto a single very large crude carrier capable of carrying 2 million barrels.
The surge in shipping costs came amid the fallout from the war between the United States and Iran, alongside major bets in the tanker market that had begun pushing rates higher before the war broke out. Ships carrying oil through the Strait of Hormuz are taking longer because of cargo transfers near Oman, while other tankers are being forced to sail thousands of miles around Africa to reach cargoes in the Mediterranean.
Transport costs may close arbitrage opportunities
The loss of part of the Middle East’s supplies has increased Asian buyers’ reliance on oil from the Americas, lengthening voyages and draining available tanker fleet capacity.
Analysts at Kpler believe current freight rates may eventually limit their own rise by closing arbitrage opportunities and reducing demand for the most expensive long-haul barrels. The market is questioning how long these costs will persist, particularly as European diesel futures approach $200 a barrel, reflecting refiners’ continued need for supplies despite the higher cost of transporting them.
