The Iran conflict has sent tanker rates soaring, and the cost is landing unevenly. Freight for shipping crude from the US Gulf Coast to Asia has jumped to 30 to 35 dollars a barrel from about 5 dollars a year earlier, Randy Hawkins, Valero’s vice president for crude and feedstocks supply and trading, told the company’s post earnings call. Higher war risk insurance premiums and longer voyages have driven shipping costs up across the market, Reuters reported.
US Gulf Coast refiners sit on the right side of that arithmetic. They can buy discounted heavy crude produced close to home, from Canada and Venezuela, while Asian rivals pay the freight and insurance penalty to import similar grades over longer and riskier routes. More than 70 percent of Gulf Coast refining capacity is configured to process heavier crude, and US refining margins more than doubled in the third quarter. “The main story right now in the market is freight rates,” Hawkins said.
The channel is the Western Canadian Select discount. Ample heavy supply from Canada and Venezuela, combined with elevated freight, has widened the WTI to WCS differential and cut feedstock costs for US buyers. For Phillips 66, every 1 dollar widening in that differential is worth about 140 million dollars in gains, executive vice president Brian Mandell said. Arrow Shipping analyst Delia He added that higher shipping costs have been more than offset by stronger fuel margins: for every extra dollar of freight, the diesel margin has grown by at least eight dollars.
The refiners also insured themselves before the war. Phillips 66 had secured more than 40 time charter vessels before the conflict, covering about 40 percent of its asset based shipping needs, and Valero, PBF, Marathon and Suncor also secured chartered fleets, insulating them from spot tanker rates. Marathon Petroleum expects record Canadian heavy crude processing in the fourth quarter, and chief executive Maryann Mannen said margins are expected to remain elevated through at least mid 2027. HF Sinclair said it expects the differentials to stay wider than they have been at least through 2027.