Soaring freight rates threaten Asia's appetite for US crude
USO•The cost of chartering a VLCC to carry 2 million barrels of US crude from the Gulf of Mexico to China reached $80 million for November, closing the route’s arbitrage window. Asian refiners may switch to Middle Eastern or Latin American crude, while some may still pay more for US oil to secure supplies.
1. Freight costs surge
VLCC freight rates for US Gulf-to-Asia and Fujairah-to-East routes have risen more than 300% since mid-August, Sparta Commodities analyst June Goh said. The $80 million November charter cost works out to about $40 per barrel, compared with $8.60 before the US-Israeli war on Iran began in February.
2. Refiners weigh alternatives
Asian refiners are considering switching to Murban crude from the United Arab Emirates, whose premium rose to more than $11 a barrel over Dubai quotes on Thursday. Murban was about $2 a barrel cheaper than WTI on a delivered basis to Asia, while refiners may also consider Medanito from Argentina.
3. Some US oil bookings persist
Japan's Cosmo Oil provisionally chartered a VLCC for $81 million to load US oil on November 19-21. Attempts by South Korea's SK Energy and Trafigura to book VLCCs for $76 million to $77 million were unsuccessful. Trafigura also chartered an Aframax tanker for $24 million to load US oil for Japan, while a separate $27 million fixture for South Korea did not go through.
