United States crude exports to Asia are set to hit multiyear lows after the war with Iran disrupted global shipping and pushed the cost of leasing a tanker for the Pacific journey to a record of almost 80 million dollars, Bloomberg reported. Asian refinery orders for US crude for delivery in November fell roughly 50 percent this month, to 24 million to 26 million barrels, according to traders cited by Bloomberg. If that pace holds through the end of October, it would mark a seven year low, based on ship tracking data from Kpler and Vortexa.
The rate is the story. The tanker rate on the US Gulf Coast to China route has more than tripled since the conflict erupted in late February, to almost 60 million dollars as of October 22, according to Baltic Exchange figures, after touching 79.6 million dollars earlier in the month. Rates on the route averaged less than 8 million dollars in the five years before the conflict. Reuters reported the daily version of the same record on October 12: the TD22 benchmark to hire a very large crude carrier for two million barrels from the US Gulf to China touched 637,675 dollars a day on October 8, the highest since the route benchmark began, before slipping to 634,974 dollars a day.
Leasing the largest class of crude carrier for the roughly 30 day voyage now costs about half the price of building a new vessel, before the cost of the oil itself, which is trading around 100 dollars a barrel. Valero Energy head of oil trading Randy Hawkins told analysts that refiners are effectively spending 30 to 35 dollars to haul each barrel from the Gulf Coast to Asia, as much as seven times what they paid last year, and called freight the main story in the market right now.
Part of the tightness is mechanical. Hawkins said smaller vessels are being used to lift crude in the Persian Gulf, where they are seen as less likely to be hit, with cargoes then transferred ship to ship to larger vessels waiting in the Gulf of Oman. That inefficient process ties up more tankers to move the same amount of oil, which is why a Gulf disruption is raising freight on a route that never enters the Gulf.
The November cycle is not a hard deadline, and one market participant cited by Bloomberg said Asia bound US cargoes could recover to as much as 40 million barrels in post cycle trades. Vortexa was skeptical that a turnaround is imminent. Either way, the direction for the next loading month is set by freight economics, not by Asian demand for the crude itself.