Tanker freight from the US Gulf Coast to Asia has risen to $30-35 a barrel, from about $5 a year earlier, according to a Valero Energy crude supply executive. The Iran conflict has disrupted tanker traffic, and the resulting freight bill now shapes where crude goes as much as crude quality does1.
“The main story right now in the market is freight rates,” Randy Hawkins, vice president of crude and feedstocks supply and trading at Valero, said on the refiner's post-earnings conference call1.
Vortexa, the tanker analytics firm, puts the same route at an average of $35 a barrel in October, against $5.80 a barrel in October 20252. Freight is quoted per barrel so it can be compared directly with the crude price, and that comparison is now the first test of whether a cargo is worth moving2.
Freight is now bigger than the discount
Atlantic Basin crude differentials fell to record lows in mid-October, according to Argus assessments cited by Vortexa, but the discounts did not cover the cost of shipping the barrels to Asia2. VLCC freight to Ningbo ran $8-16 a barrel higher from Atlantic origins than from Fujairah in the four weeks to October 25, against $1-3 a barrel through 20252.
Sellers of heavy crude responded by deepening discounts. Ample Canadian and Venezuelan heavy supply, combined with high freight, widened the WTI-WCS spread, the gap between US benchmark West Texas Intermediate and Western Canadian Select1. More than 70% of US Gulf Coast refineries are configured to run heavier crude1.
For Phillips 66, every $1 widening in the WCS-WTI differential is worth about $140 million, executive vice president Brian Mandell said1. US imports of Venezuelan crude averaged 701,000 barrels a day in July, the most since May 20174. They averaged 655,000 barrels a day in August4. The US Energy Information Administration said high global refining margins and looser US restrictions on Venezuelan purchases supported the rise4.
Asian refiners pay the other way
For buyers in Asia, the same freight bill arrives inside the delivered premium. Platts assessed WTI Midland delivered to Yeosu at a premium of $34.60 a barrel to front-month Dubai on September 18, a record, and at $26.30 a barrel on October 265. WTI Midland premiums have held above $10 a barrel since the start of the second quarter5.
Japan took 384,330 barrels a day from North American suppliers in the first eight months of the year5. That was up 352% from a year earlier, according to the Ministry of Economy, Trade and Industry5. South Korea's refiners paid an average of $95.03 a barrel for US crude in January to September, against $91.59 a barrel for all their crude imports5.
For some refiners, finding a ship is the hardest part. Hindustan Petroleum's chairman, Vikas Kaushal, said the company struggles to book tankers for Gulf cargoes. “The main challenge has been hiring of ships,” he said, adding that owners sometimes withdraw after a fixture is agreed6. HPCL bought 256,000 barrels a day of Middle East oil last month, up from 57,000 barrels a day in April6.
Higher freight also helps US Gulf refiners in their own export markets. “Higher freight rates actually give us an advantage into the typical export markets into Latin America,” Valero chief operating officer Gary Simmons said, noting that the main competition there is European barrels1.
Charter cover decided the quarter
The refiners that had already fixed ships gained most. Phillips 66 arranged time charters for more than 40 vessels before the Iran conflict, enough for about 40% of the shipping its own assets need1. Valero, PBF, Marathon and Suncor also lined up chartered fleets before the war1. US refining margins more than doubled in the third quarter1.
Suncor's adjusted operating earnings rose to C$4.631 billion from C$1.794 billion a year earlier, helped by higher downstream margins7. Refinery throughput was 487,700 barrels a day, and refined product sales reached a third-quarter record of 676,900 barrels a day7.
Some of the freight bill has been passed into product prices. “For every extra dollar of freight, the diesel margin has grown by at least eight,” said Delia He, an oil and tanker market analyst at Arrow Shipping1.
Off the peak, not back to normal
Baltic Exchange data for the week to the end of October put the Middle East Gulf to China VLCC route, TD3C, at WS1262.53. That is a round-trip equivalent of $1,345,710 a day3. The US Gulf to China run, TD22, cost almost $61.5 million a voyage, or $477,013 a day3.
Rates have since softened. Clarksons said tanker equity valuations fell after the Democrats' midterm win, reflecting a substantial decline in freight rates8. Vortexa also reported that US Gulf to Ningbo VLCC freight fell $7.30 a barrel in the week it reviewed, a bigger drop than for Brazil or West Africa2.
Crude has fallen faster than fuel. Brent spot was $107.03 a barrel on November 3, down 13.1% on the week, while US on-highway diesel was $6.292 a gallon on November 2, down 0.9% on the week9, 10. US distillate stocks dropped below 100 million barrels for the first time since 2003, even as refinery utilisation rose to 94.5%11.
Vortexa says freight looks to have peaked in the short term12. It said a return to pre-war levels is still unlikely, because loading delays, shuttle transfers and 29 vessel incidents around Hormuz in October keep ships tied up12.
What to watch for 2027
Several refining executives expect wide differentials to last. Marathon Petroleum expects record Canadian heavy crude processing in the fourth quarter, and chief executive Maryann Mannen has said margins should stay strong through at least mid-20271. HF Sinclair said it expects differentials to stay wider than they have been, at least through 20271.