Record tanker rates are pushing heavy crude prices in Canada, Colombia and Ecuador down by roughly $10 per barrel. Shipping costs from the Americas to Asia have reached $40 per barrel, keeping Asian and European refiners away and prolonging the diesel crunch.
Heavy crude oil is piling up in the Americas because freight costs have made it too expensive to ship abroad. Prices for Canadian, Colombian and Ecuadorian heavy crude have each shed some $10 per barrel in recent weeks, according to Argus data cited by Reuters.
Freight costs outrun the discount
The Middle East crisis has driven tanker rates to all-time highs and created a shortage of vessels, tipping the heavy crude market in North and South America into oversupply. Asia and Europe, meanwhile, face a shortage of heavy grades.
Canada produces over 5 million barrels of crude daily, most of it heavy, and some 4 million barrels daily go south to U.S. refineries. Western Canadian Select reached $74 per barrel last week before rebounding to $79.50 at the time of writing.
The discount looks tempting next to Russian Urals at close to $120 per barrel. However, those prices exclude freight and insurance, which have reached up to $40 per barrel, while heavy crude is in especially strong demand because it yields more diesel than lighter grades.
Ship-to-ship transfers tie up the fleet
Shipping from the U.S. Gulf Coast to Europe now costs $46 million in total, or $24.50 per barrel, against $6.5 million before the war. The Americas-to-Asia route costs over $80 million, or $40 per barrel.
TP ICAP analyst Scott Shelton told Reuters: "You need a ship and the price of ships are going up". Middle Eastern producers are moving oil by ship-to-ship transfers outside the Strait of Hormuz, and supertanker rates from the Gulf to Asia hit $1.4 million daily earlier this month.
Oilprice.com suggests that the diesel crunch is not about to go away anytime soon. As long as so many vessels stay tied up in ship-to-ship transfers, freight costs are unlikely to fall enough to revive cross-Atlantic demand for heavy crude.
Source: Oilprice.com
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