Record high freight costs are changing how Asia buys crude. Asian buyers are increasingly using smaller tankers and ships under long term charter deals, and buying Middle East crude on a delivered basis to shift the transport cost to sellers, refining and trading sources told Reuters. The surge in flows through Hormuz, mostly via ship to ship transfers in the Gulf of Oman, ties supertankers up for weeks waiting outside the strait, limiting VLCC availability for other key routes such as the US Gulf Coast to Asia.
The cost shock has effectively shut that arbitrage. Asian refiners now face record freight to receive US Gulf Coast cargoes, while European refiners are opting for nearby regional volumes. The result is a re-grading of the crude market by distance. The Dated Brent benchmark stood at a record 20 dollar a barrel premium to futures last week, and Norway’s medium sour Johan Sverdrup hit a record 24 dollar premium to Brent, according to Wood Mackenzie data. African and US crudes, by contrast, have seen discounts widen to offset long voyage costs: West African prices slumped to record low discounts, with some grades down to minus 20 dollars a barrel, London based traders told Reuters.
The pattern is the physical counterpart of the freight warning in this morning’s top story: when transport costs exceed 35 dollars a barrel on Gulf routes, distance itself becomes the dominant quality differential, and refiners pay for proximity rather than for crude quality.