Tanker freight rates surge as heavy crude oil accumulates in the Americas

⑴ Tanker freight rates have reached historic highs, leading to an oversupply of heavy crude oil in the Americas, with crude prices from Canada, Colombia, and Ecuador under pressure by about $10 per barrel. ⑵ Transportation costs have risen to about $40 per barrel, making U.S. heavy crude increasingly uneconomical for refineries in Asia and Europe. ⑶ The global diesel supply shortage is expected to persist, as a lack of tankers hinders the transport of heavy crude oil to markets where demand remains robust. ⑷ Tensions in the Middle East have pushed tanker freight rates to record highs and caused a shortage of vessels. This logistical issue is generating a chain reaction, resulting in a surplus of heavy crude oil in North and South America, while Asia and Europe are facing a shortage of heavy crude. ⑸ Canada produces more than 5 million barrels of crude oil per day, most of which is heavy crude, with about 4 million barrels per day heading south to U.S. refineries. ⑹ Venezuela’s production has increased since the U.S. disposed of the country's government and took over the oil industry, but most of this crude flows to the U.S. Gulf Coast and is thus less affected by freight rate fluctuations. ⑺ Heavy crude prices from Canada, Colombia, and Ecuador have each fallen by about $10 per barrel in recent weeks, with flagship grades touching six-week lows. ⑻ Western Canadian Select crude fell to $74 per barrel last week before rebounding to around $79.50. ⑼ Ecuador’s flagship heavy crude Oriente fell to $76 last week but has since rebounded, currently trading above $84; Colombian Vasconia was quoted at $84 last week and may rise this week as the recent tanker attack in the Strait of Hormuz pushes oil prices higher. ⑽ These prices may seem attractive, but they do not include freight and insurance, which together have now reached $40 per barrel. The global diesel shortage is driving particularly strong demand for heavy crude, as it yields more diesel than lighter grades. ⑾ According to analysts from some institutions, you need ships, but ship prices are rising and available vessels are decreasing. ⑿ Global tanker freight rates have surged this year, as Middle Eastern producers turn to ship-to-ship transfers outside the Strait of Hormuz; total freight costs for the U.S. Gulf to Europe route have now risen to around $46 million, or about $24.50 per barrel, far higher than the pre-war level of about $6.5 million, or about $4 per barrel. Freight costs from the Americas to Asia are even higher, at around $40 per barrel. The market will be watching whether freight rates can fall back and how the diesel shortage situation evolves.