Asian refiners have ordered 24 million to 26 million barrels of US crude for November delivery, traders told Bloomberg, roughly half the previous month1. If that pace of orders holds to the end of October, it would be a seven-year low on Kpler and Vortexa ship-tracking data1. The cause is not the oil price, which is around $100 a barrel, but the cost of the ship carrying it1.
Freight has become the swing factor
A very large crude carrier (VLCC, the largest crude tanker) now costs almost $60 million for the US Gulf Coast to China run, Baltic Exchange figures show1. That is more than triple the rate before the US-Iran conflict began in late February1. It touched $79.6 million earlier in October, against an average below $8 million before the war1.
Randy Hawkins, Valero Energy's head of oil trading, said refiners were paying $30 to $35 to move each barrel from the Gulf Coast to Asia, up to seven times last year's cost1. "The main story right now in the market is freight rates," he told analysts1.
The International Energy Agency put Middle East Gulf to Asia freight above $37 a barrel by mid-October, more than five times pre-war levels4. US Gulf Coast to Singapore cost about $334. Goldman Sachs puts the global average crude freight rate above $20 a barrel, against $3 a year ago5.
US grades are repricing, but not enough
Export grades are adjusting. Mars, a medium sour Gulf of Mexico crude similar to Middle Eastern grades, has cut its premium to futures to $6 from $17.50 in late March1. Goldman expects producers who depend on distant buyers to discount more deeply to keep them5.
Mars at $6 over futures is still a premium, and it sits next to $30 to $35 a barrel of shipping on the Asia run1. Vortexa senior analyst Rohit Rathod said: "The incentive for Asian buyers to source from the US Gulf Coast has diminished"1.
Where India fits
India, the world's third-largest crude importer, meets more than 85% of its needs with imports6. Its September crude imports rose more than 16% from August to 22.26 million tonnes, PPAC data show2. Middle Eastern crude was about 54% of the basket at around 2.8 million barrels a day, and Russia 33.5% at about 1.8 million3. The top three suppliers were Russia, the UAE and Iraq; US crude was not among them3.
The order figures reported this week cover Asia as a whole, not India1. No India-only figure for November purchases is yet public, and none of India's large refiners has said publicly that it cut or deferred US cargoes for November or December.
Middle East volumes returned to pre-war levels in September as Russian discounts narrowed, and Iraqi crude jumped to about 830,000 barrels a day from 171,0003. Refiners are expected to favour Gulf crude because of shorter voyages and producer price cuts meant to offset freight3. Some producers now sell on a delivered basis and absorb part of the freight, and Indian Oil has bought Iraqi crude at a discount to Dubai on a free-on-board basis7.
Russian supply has not disappeared. Trade-source estimates put India's Russian imports at about 1.8 million barrels a day in September3. S&P Global Commodities at Sea counted discharges of 1.64 million, down from a June peak of 2.43 million8. The US waiver of penalties on buyers of Russian oil, signed on 16 October, cut the risk of those purchases. It is temporary and can be withdrawn, and analysts said it does not change the supply picture8.
Washington is still pressing. Rubio's visit this month was part of a push to expand US fuel exports to India. The US ambassador said India's LPG imports from the US rose from under 10% to 67% in a year9.
What would have to change
Three things: cheaper ships, wider US differentials, or an end to the Gulf of Oman bottleneck. Hawkins said shuttling smaller tankers through Hormuz and transferring cargoes to bigger ships at sea "is really tying up global shipping"1. Kpler put Middle East flows at 24.6 million barrels a day in the week to 18 October, while Vortexa's estimate was 18 million10. Flows through Hormuz, including offshore transfers, are about 82% of pre-war levels11.
Washington also wants to return some sanctioned ships to legitimate trade, but Kpler reckons only 24 of about 160 sanctioned VLCCs could come back, and Braemar puts it at 1912. Arrow Research expects freight to stay strong into the first quarter of 202712.
Volumes could still surprise: one market participant said Asian orders for November could recover to as much as 40 million barrels in late trades, a view Vortexa does not share1.