U.S. oil exports to Asia plunge as war disrupts shipping, lifting tanker rates to record high

U.S. crude oil exports to Asia are poised to hit multiyear lows after the Middle East war disrupted global shipping and lifted the cost to lease a tanker for the journey to as high as nearly $80K, Bloomberg reported Thursday.

As a result, Asian refinery orders for U.S. crude for November delivery have been cut roughly in half this month to 24M-26M barrels, traders told Bloomberg, which would mark a seven-year low if the pace of orders holds through the end of October, based on ship-tracking data.

The tanker rate along the U.S. Gulf Coast-to-China route has more than tripled since the U.S.-Iran war started in late February to nearly $60M as of Thursday, according to Baltic Exchange figures, after touching a record $79.6M earlier this month—not including the cost of the oil itself, which is trading at ~$100/bbl—compared to an average of less than $8M in the five years before the conflict.

"The main story right now in the [oil] market is freight rates," Valero Energy's (VLO) head of oil trading Randy Hawkins said during the company's earnings conference call Thursday.

Tanker rates are so inflated that refiners are effectively spending $30-$35/bbl to transport crude from the U.S. Gulf to Asia, or as much as 7x what was typically spent last year, Hawkins said.

Valero's (VLO) Hawkins said one factor affecting global tanker availability has been the increased use of smaller vessels to pick up crude in the Persian Gulf that are less likely to be hit by Iranian fire in Strait of Hormuz; once they have exited the waterway, their cargoes are transferred to larger vessels waiting in the Gulf of Oman.

"The inefficient process of this ship-to-ship transferring that they're doing of crude oil in the Gulf of Oman is really tying up global shipping and requiring more tankers to move the same amount of oil," Hawkins said.

Brent crude oil prices surged 4% to a five-month high ​on Thursday as Yemen's Iran-backed Houthis continue attacks on Saudi targets and the market frets about reported U.S. preparations for possible renewed strikes against Iran.

The contradiction between high crude export levels out of the Persian Gulf and high prices "reflects the extent of market fear of renewed supply disruption," Samer Hasn of XS.com said in a note.

"Oil prices are resuming their upward climb amid growing signs that raise the probability of renewed escalation in the Middle East, which could disrupt crude supplies from the region on a wide, multi-point scale and in a way that could be structural," Hasn wrote.

Front-month Brent crude (CO1:COM) for December delivery rose 4% Thursday to $113.17/bbl, the highest settlement value since May 4, and front-month Nymex December crude (CL1:COM) increased 2.4% to $99.47/bbl, its ninth gain in the past 11 sessions.

Front-month Nymex natural gas (NG1:COM) for November delivery added 0.2% to $2.796/MMBtu.

ETFs: (USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (USOI), (UNG), (BOIL), (KOLD), (UNL), (FCG), (XLE), (XOP)