Record tanker rates threaten seven-year low in U.S. crude Asia orders

By Marcus Bennett

The cost of leasing a crude tanker from the U.S. Gulf Coast to China reached $79.6 million earlier in November, according to Baltic Exchange figures, versus an average below $8 million in the five years before the U.S.-Iran conflict erupted in late February.

How high have tanker rates gone?

The same route cost almost $60 million on Thursday, more than three times the pre-conflict level, Baltic Exchange data showed. For a 30-day voyage, the charter for one of the largest crude carriers now amounts to roughly half the cost of building a brand-new vessel.

The $79.6 million peak did not include the oil itself, which was trading around $100 per barrel. Freight has therefore become a separate cost large enough to change sourcing decisions even when crude prices do not.

What has happened to November cargo orders?

Asian refinery orders for U.S. crude for November delivery dropped roughly 50% on a sequential basis to 24 million-26 million barrels, according to traders who were not authorized to speak publicly. Kpler and Vortexa ship-tracking data indicate that, if that pace held through month-end, volumes would fall to a seven-year low.

The November trading cycle has no hard deadline, however. One market participant said Asia-bound U.S. cargoes could recover to as much as 40 million barrels in post-cycle trades, leaving room for late additions.

Rohit Rathod, a senior Vortexa analyst, said: “We don’t currently see evidence of a near-term surge that would push those volumes significantly higher.”

What does the freight bill do to refinery economics?

Valero Energy head of oil trading Randy Hawkins said on an analyst conference call: “The main story right now in the market is freight rates.” He said refiners were effectively spending $30 to $35 to move each barrel from the Gulf Coast to Asia, as much as seven times what they paid a year earlier.

The International Energy Agency put Gulf oil shipping costs above $37 per barrel, five times pre-war levels. With oil around $100 per barrel, Hawkins’s freight charge equates to 30%-35% of cargo value.

Using the range’s endpoints, moving the 24 million-26 million barrels now ordered would cost about $720 million-$910 million in freight, separate from the crude purchase.

For shippers and refiners, that burden has already cut Asia-bound orders and squeezed long-haul arbitrage. Tanker owners face stronger pricing, yet the same disruption reduces effective capacity. Forwarders must price the voyage reset alongside crude costs and refinery margins.

What are export price signals saying?

Export-bound Permian Basin oil traded 25 cents above benchmark futures at the Magellan East Houston hub on Wednesday, down from a premium of more than $3 six weeks earlier, Link Data Services said. The contraction shows freight costs reaching U.S. export pricing.

Medium-sour Mars, pumped from deepwater wells in the Gulf of Mexico and similar to Middle Eastern crude, saw its futures premium fall to $6 from $17.50 in late March.

Rathod said high freight costs remained the primary factor squeezing arbitrage economics on long-haul routes, diminishing the incentive for Asian buyers to source from the U.S. Gulf Coast. Delivered costs can still rise because the freight increase far exceeds the narrowing export premium.

Why are tankers tied up?

Hawkins said the conflict has prompted the use of smaller vessels to load Persian Gulf crude because they are less likely to be hit by Iranian fire in the Strait of Hormuz. After crossing the waterway, those cargoes transfer to larger vessels waiting in the Gulf of Oman.

He described the ship-to-ship process as inefficient because it ties up global shipping and requires more tankers to move the same volume of oil. Insurance rates and high fuel costs are also pushing up freight costs.

The disruption has not reduced all U.S. export activity. The country sent more than 6 million barrels of oil abroad per day in late April, a record at that time, as the war curtailed flows from the Middle East. The immediate problem is the cost of delivering those barrels to Asia.

What comes next?

The next test is whether post-cycle cargoes lift November orders toward 40 million barrels; without evidence of such a surge, freight near $60 million and constrained tanker availability will keep the incentive for Asian buyers to source from the U.S. Gulf Coast diminished.