With the arbitrage for U.S. shipments closed, Asian refiners may make up some of the difference with similar Middle Eastern crude oil after top regional producer Saudi Arabia cut their sales prices for February, which is expected to carry over to other regional crudes. The spur in Middle Eastern crude demand may support prices for the region’s oil which has flagged in the previous months.
The cost of chartering a Very Large Crude Carrier (VLCC) capable of loading 2 million barrels of oil from the U.S. to Asia jumped to around $10 million this week from about $8 million last week, according to traders and data from shipbroker Simpson Spence & Young on LSEG Eikon.
The freight rally has increased the premium for West Texas Intermediate (WTI) crude from the U.S. to over $4 a barrel against Dubai quotes on a cost-and-freight basis for delivery in April from around $2 last week, traders said.
That has pushed WTI to a premium of $1 per barrel more than Murban crude from the United Arab Emirates, which is somewhat similar to WTI, for delivery to Asia, up from parity or a small discount last week, said several traders that participate in the market.
“No deal (for WTI) is heard settling at the new prices. The arbitrage window is now closed,” said a Singapore-based oil trader.
The tightness in the tanker market followed South Korean shipowner Sinokor Merchant Marine booking four VLCCs last week to haul oil from the U.S. to China from January to March, according to a source with direct knowledge of the matter, shipbrokers and Kpler data.
The VLCCs were Agitos, Olympic Target, Oceanis and Agios Nikolas and the charter rates ranged from $8.39 million to $9.7 million, the data showed.
Sinokor declined to comment on the bookings.
“A high level of spot activity out of the U.S. Gulf has tightened vessel availability in the Atlantic Basin and rates have responded higher,” said Jefferies analyst Omar Nokta in a note.
The price cuts by Saudi Arabia for February could add to the shipping demand as some refiners are expected to tweak their loadings next month to take more Saudi oil and increase their overall Middle East purchases, traders and analysts said.
U.S. crude shipments rose to a record in 2023, Kpler data showed, though volumes were estimated to be falling in January after a rise in Murban exports. That trend is likely to continue in the near term amid the freight increase.
“The hike on freight rates came as a shock,” said a Singapore-based trader with a North Asian refinery. “The direct outcome is that the U.S. crude is no longer competitive in Asia.”
(Reporting by Muyu Xu in Singapore, Arathy Somasekhar in Houston, Joyce Lee in Seoul and Jonathan Saul in London; Editing by Florence Tan and Christian Schmollinger)