$1.3 Million Per Day: The Crushing Cost of Shipping Oil Sparks Refining Crisis

The cost of shipping oil is at an all-time high, with Very Large Crude Carriers (VLCCs) earning $1.3 million per day, or about 43 times what they earned in January. This is equivalent to nearly $33 per barrel, which is 27 percent of the delivered cost of Middle East crude into Asia. The Baltic TD3C Middle East, China assessment has crossed $1 million a day for the first time and has peaked near $1.2, $1.3 million.

The spike in shipping costs is due to logistics, not a shortage of barrels. Crude flows through Hormuz have recovered to 12 million barrels per day from a second-quarter low below 2 million, but the pattern is inefficient, with shuttle tankers and longer Atlantic hauls contributing to higher costs.

Amrita Sen of Energy Aspects has said that freight may be the thing that breaks this market in the near term, with landed crude costs in Asia soaring toward $150 a barrel even while Brent has traded nearer $95-110. Old hulls are being sold at high prices above newbuilds, and an orderbook that cannot keep up.

High freight is already showing up in refinery behavior, with Chinese independents trimming runs and Indian buyers shifting towards longer-haul Atlantic grades. Mary Melton of Braemar has noted that record shipping costs are eroding refining margins.