Asian refiners' pain is Middle East oil producers' problem: Bousso
USO•High freight and insurance costs are eroding Asian refiners’ margins despite recovering Middle East crude exports. Shipping now consumes about 82% of Asian refiners’ gross margins, and Gulf producers have reportedly offered discounts of up to $30 a barrel.
1. Freight squeezes margins
Asian crude imports are set to reach 23.5 million barrels per day in October, their highest level since February, with about 10 million bpd coming from the Middle East. But traders say some Asian refiners’ margins are near zero as shipping costs and insurance premiums soar.
2. Costs rise sharply
Shipping and insurance can now account for as much as 30% of delivered crude costs for some refiners, compared with a typical 3% to 7%. Transporting a 2-million-barrel cargo from Nigeria to Singapore costs around $32 a barrel, roughly eight times its pre-war level. Asian gross refining margins have averaged around $40 a barrel in October; after average freight costs of roughly $33, the net margin is just over $7.
3. Pressure on Gulf producers
Asian refiners could cut processing rates or draw down crude inventories, reducing demand for imported oil. Middle Eastern producers have already cut selling prices, with some reportedly offering discounts of as much as $30 a barrel. Iranian tanker attacks in Hormuz have intensified over the past two weeks, reaching their highest weekly tally since the conflict began.
