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Takeaways by Bloomberg AI
- Crude from the US could become too expensive for Asian buyers due to higher tanker rates.
- Chinese refiners are placing orders for crude to arrive before the end of the year to use up import quotas, reducing the number of vessels available to ferry oil from the Americas to Asia.
- The trend of shipping oil from the US to Asia may not continue for much longer due to narrowing timespreads and differentials for Middle East oil grades, making them cheaper compared to US grades.
Crude from the US could become too expensive for Asian buyers due to higher tankers rates, which have been inflated by an increase in Chinese purchases and traders positioning for more OPEC+ supply.
Chinese refiners are placing orders now for crude that will arrive before the end of the year to use up import quotas issued by Beijing, according to traders who are involved in the market, asking not to be identified as they’re not authorized to speak to the media. That demand for supertankers means there are fewer vessels available to ferry oil from the Americas to Asia.
The daily rate for a very-large crude carrier transporting oil to China from the US is currently more than $70,000, according to Baltic Exchange data. While that is lower than the $90,000 for the Middle East to China route, the journey from the Americas is at least two weeks longer, boosting the overall cost.
So-called arbitrage flows — referring to oil shipped from regions such as the US to Asia to take advantage of price and cost differentials — have been a feature in spot trading over the past several months. It remains economical, highlighted by a purchase of US West Texas Intermediate by India’s Bharat Petroleum Corp. this week, but the trend may not continue for much longer.
“With OPEC unwinding their quotas, we are seeing more cargoes in the East of the Suez,” said Ed Finley-Richardson, shipping analyst and founder of Contango Research. Ship “owners are optimistic about their prospects there, and so prefer to remain in the East,” he added.
Traders also cited fast-weakening Middle East oil-market indicators, including narrowing timespreads for the Dubai benchmark, and differentials for grades such as Oman and Murban. That would make oil from nearby Persian Gulf countries cheaper compared with grades from the faraway Americas.
Murban’s Premium Over Brent Is Quickly Eroding
Price of Abu Dhabi’s Murban crude has been falling this month
While the Organization of the Petroleum Exporting Countries and its allies add more barrels to the market, there are tentative signs of tightness in the US. Nationwide crude inventories declined for a second straight week to reach the lowest since January, according to government data.
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