Asian refiners' pain is Middle East oil producers' problem: Bousso
USO•Shipping and insurance costs are squeezing Asian refiners despite a recovery in Middle East crude exports. Freight costs are consuming 82% of Asian refiners’ gross margins, while Gulf producers have reportedly offered discounts of as much as $30 a barrel.
1. Shipping costs squeeze margins
Asian refining margins remain under pressure as high freight rates and insurance costs offset recovering crude supplies. Shipping and insurance can now account for as much as 30% of crude’s delivered cost, compared with a typical 3% to 7%.
2. Exports have rebounded
Middle Eastern crude exports rose to 15.4 million barrels per day in September, nearly 90% of pre-war levels, while Asian crude imports are set to reach 23.5 million barrels per day in October. Gross Asian refining margins have averaged around $40 a barrel this month, but after average freight costs of roughly $33, net margins are just over $7.
3. Pressure on Gulf producers
Asian refiners may cut processing rates or draw down inventories, reducing demand for imported crude. Middle Eastern producers have already lowered selling prices, with some reportedly offering discounts of as much as $30 a barrel; further discounts may be needed if shipping costs remain high.
