Asian refiners have stopped buying US Gulf Coast crude because the cost of shipping it has surged to levels that erase the arbitrage, cutting off a supply line that had sustained the region through most of the Iran war. The move coincides with a vessel shortage driven by ships being diverted into inefficient routes around the Strait of Hormuz.
Freight math breaks the arbitrage
A supertanker from the US Gulf to Japan was offered this week at a lump-sum fee of $82 million, up 50 percent from three weeks earlier, according to Bloomberg. Trafigura chartered a vessel to China at $76 million, a source told CNBC. Before the war, the same journey cost $7 million to $10 million. At current rates, freight alone adds roughly $38 per barrel, a figure that makes US crude uneconomic for Asian buyers regardless of the headline price.
Vessel shortage traces to Hormuz detours
Brokers and traders told Reuters the tanker market is reeling because a significant portion of the global fleet is tied up sailing longer, less efficient routes to avoid constraints at the Strait of Hormuz. That shortage has pushed spot rates to records almost daily, and the source said the economics of paying $80 million for a single cargo simply do not work for refiners in the world’s largest importing region.
Middle East grades absorb the shift
With the US-Asia window closed, refiners are turning to the United Arab Emirates’ Murban grade and South American barrels. Demand for Murban lifted its premium over the Dubai benchmark to more than $11 a barrel on Thursday, a level that reflects the scramble for replacement barrels that do not require a trans-Pacific crossing at current freight rates.