Soaring freight rates give US refiners edge as crude discounts widen
VLO•The Iran conflict has driven up tanker rates and widened discounts on heavy crude, giving US Gulf Coast refiners a cost advantage over Asian rivals. US refining margins more than doubled in the third quarter, and Marathon Petroleum expects record Canadian heavy crude processing in the fourth quarter.
1. Freight costs widen crude discounts
Security threats around the Strait of Hormuz, higher war-risk insurance premiums and longer voyages have disrupted tanker traffic and raised shipping costs. Freight for crude shipped from the US Gulf Coast to Asia has risen to $30-$35 a barrel from about $5 a year earlier, Valero executive Randy Hawkins said.
2. US refiners benefit
US Gulf Coast refiners have been able to buy discounted heavy crude from nearby sources including Canada and Venezuela, while Asian rivals face higher costs importing similar grades. More than 70% of Gulf Coast facilities are configured to process heavier crude. Phillips 66 executive Brian Mandell said each $1 widening in the WCS-WTI differential is worth about $140 million in gains for the company.
3. Shipping and outlook
Phillips 66 secured more than 40 time-charter vessels before the conflict, covering about 40% of its asset-based shipping needs. Marathon Petroleum expects record Canadian heavy crude processing in the fourth quarter, and its CEO said margins are expected to remain elevated through at least mid-2027. HF Sinclair said it expects wider differentials to continue at least through 2027.
