Tanker Costs Squeeze Asian Refiners as Oil Freight Soars
A fall in headline oil prices does not automatically mean cheaper delivered oil. The cost of moving crude by sea remains exceptionally high, and that gap is now squeezing the refiners that turn crude into the fuels households and businesses use.
The benchmark for the trade is the Very Large Crude Carrier, or VLCC, route from the Middle East Gulf to China. For the week ending 9 October, the Baltic Exchange reported that route, known as TD3C, at WS 1,318.75, corresponding to time charter equivalent earnings of approximately $1.4 million per day for a round voyage.
Still above $1.3 million a day in mid-October
The market eased slightly the following week, but stayed at an exceptional level. In the Baltic Exchange update for the week to 16 October, the TD3C rate fell 37.5 points to WS 1,281.25, giving a daily round-trip time charter equivalent of $1,370,193 for the standard Baltic VLCC.
Why refiners feel it first
The International Energy Agency, in a monthly report reported on 14 October, said the freight rate for a VLCC on a Middle East Gulf to Asia route had risen to around $36 a barrel by early October, more than five times the cost before the Iran war. Freight for the US Gulf Coast to China route had risen above $37 a barrel, the IEA added.
That increase in delivered crude costs pushed margins for Asian refiners processing medium sour crude into negative territory in September, according to the IEA report. Refiners can partly offset the pressure by buying US crude, the report noted, but those freight rates have also surged.
