The fallout from the Iran-linked war has hit the efficiency of oil tanker voyages around the world, causing a sharp decline in available fleet capacity and a historic jump in freight rates, completely erasing the economic viability of transporting crude oil from the US Gulf Coast to Asian markets.
The cost of shipping crude oil from the US Gulf Coast to China earlier this month reached $80 million per trip, which is ten times the usual rates that stabilized for years before the outbreak of war.
Standard shipping costs
Although shipping prices have fallen slightly from their peak in early October, they are still hovering this week around $60 million per giant tanker heading from the United States to Asia. This high cost prompted Asian refineries to refrain from ordering US crude for deliveries next November.
According to informed traders who spoke to Bloomberg “”, Asian refineries' orders for US crude fell this month by about 50% compared to September, settling at about 25 million barrels allocated for November deliveries. If orders remain at this low level until the end of the current trading cycle, Asia could receive its lowest US oil volume in seven years in November.
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Global pricing distortions
Randy Hawkins, Vice President of International Crude Oil Supply and Trade at Valero Energy «Valeiro Energy», said during the company's results announcement conference this week that shipping prices have become the most prominent event in the market, explaining that “The cost of transporting a barrel of oil via a giant tanker from the US Gulf Coast to Asia currently ranges between $30 and $35 per barrel, compared to the 2025 average, which was only about $5”.
Hawkins added that this boom is causing severe disruptions in global oil pricing, as refinery owners seek geographically close barrels, while distant sellers are forced to lower their prices and offer discounts to compensate for high shipping costs. As a result, buyers in Asia turned to Middle Eastern oil on a port delivery basis to reduce costs, while European refineries preferred nearby supplies within the continent.
Price differential map
This intense demand for European and Middle Eastern oil led to a record rise in premiums for some crudes, as the premium for dated Brent crude «Dated Brent) reached an unprecedented level of $20 per barrel above the standard Brent price last week. Norway's medium-acid crude «Johan Sverdrup» premium also jumped to $24 above Brent, according to «Wood MacKenzie» data.
In contrast, US and African crudes faced a collapse in their premiums and widening discount margins to cover shipping costs for long-haul flights to Asia, as West African crudes plunged to unprecedented discounts, some reaching $20 per barrel.
In the US market, the premium for West Texas Intermediate crude oil in the Midland Center «east of Houston» (MEH) fell to only 25 cents per barrel above the standard crude, after it exceeded $3 in early September, according to data «Link Data Services». The Gulf of Mexico's acidic average crude premium «March» also fell to $6, compared to about $17.50 a barrel at the end of March.
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