Surging VLCC Rates Threaten US Crude Exports to Asia

Record-high tanker freight rates have closed the arbitrage window for U.S. crude exports to Asia, forcing refiners in the region to seek alternatives such as UAE Murban and Argentine Medanito. The sharp escalation in shipping costs stems directly from operational inefficiencies tied to the closure of the Strait of Hormuz.

"This dizzying rise in freight rates translates to a higher delivery cost of crude into the Asian refineries," said June Goh, senior analyst at Sparta Commodities, adding that product cracks would need to remain elevated to keep the overall refining margin positive.

The Cost of Chartering VLCCs

According to a Reuters report citing data from shipbrokers Simpson, Spence & Young on LSEG, the cost of chartering a very large crude carrier (VLCC) to carry 2 million barrels of U.S. oil from the Gulf of Mexico to China in November hit $80 million this week. At $40 a barrel, shipping costs now equal nearly half of the current price of a West Texas Intermediate crude future contract, marking a dramatic surge from $8.60 per barrel before the U.S.-Israeli war on Iran began in February.

Refiners are navigating these costs despite the financial strain. Japanese refiner Cosmo Oil has provisionally chartered a VLCC for $81 million to load U.S. oil on November 19-21, according to two traders and two shipping sources cited in the Reuters report. Additionally, Trafigura chartered the Aframax tanker Torm Hilde, which has a capacity of about 600,000 barrels, for $24 million to load U.S. oil for Japan on November 1. Meanwhile, a planned fixture by Vitol for the Aframax tanker Riverside to carry U.S. oil to South Korea in early November for $27 million ultimately did not go through.

Bottlenecks and Hormuz Closures

"The reasons for such exorbitant increases in VLCC freight rates are the hugely inefficient ship-to-ship (STS) activities as a workaround to the Strait of Hormuz closure and increased Atlantic Basin arbitrage crudes into the Far East, leading to lower open tonnage available," said June Goh, senior analyst at Sparta Commodities.

These constraints highlight the structural vulnerabilities currently facing long-haul maritime energy trade. As traditional pathways remain disrupted, Asian buyers face difficult margins when sourcing North American oil inventories.