The US-to-Asia crude arbitrage has closed. Record freight costs, driven by the shortage of tankers tied up in inefficient ship-to-ship transfers around the Strait of Hormuz, have made it uneconomic for Asian refiners to buy American oil, shipbrokers and traders told Reuters. US crude, which had come to the rescue of Asian refiners during most of the Iran war, is now out of reach because paying around $80 million to ship one cargo from the US Gulf Coast no longer works.
The fixtures tell the story. Trafigura reportedly chartered a supertanker from the US Gulf Coast to China at a lump-sum fee of $76 million, ten times the $7 to $10 million before the war, implying a freight cost of about $38 per barrel on a two-million-barrel cargo. Rates on the US Gulf-to-Japan route ran higher still, with one supertanker offered at $82 million, up 50 percent in three weeks. Japanese refiner Cosmo Oil provisionally booked a VLCC at $81 million for a November 19-21 loading, while bids of $76 to $77 million by SK Energy and Trafigura fell through. Reuters reported that rates on major US Gulf and Middle East routes to Asia have risen more than 300 percent since mid-August, and shipbroker data suggest inflation-adjusted supertanker rates now exceed the 1980s Iran-Iraq Tanker War levels.
There was a marginal pullback Friday. The Baltic Exchange’s TD22 benchmark, the cost of hiring a VLCC for two million barrels of US oil to China, slipped to $634,974 a day after touching $637,675 on October 8, the highest daily rate since the route’s inception and the first decline since September 8. Supertanker rates from the Middle East to Asia also hit $1.4 million a day earlier this month, Sparta Commodities analyst June Goh noted.
Asian refiners are rerouting. With the arb closed, refiners are buying more UAE Murban and South American barrels, pushing Murban’s premium over Dubai quotes above $11 a barrel on Thursday. Goh cautioned that the diversification angle remains in play while Hormuz can still be disrupted, so even a closed arbitrage may not end Atlantic flows to Asia entirely.