Greetings, readers. With the current stillness in the situation involving Iran and Israel, I thought it an opportune time to share insights on a pressing issue in the oil market. This post may not be original, as I’m still recovering from an illness and managing other site-related responsibilities. Nonetheless, the topic at hand is crucial: soaring tanker prices are leading buyers, particularly in Asia, to source oil from nearer, less expensive suppliers rather than from distant markets like the U.S. and Africa, which is resulting in significant discounts on oil prices.
On a related note, recent developments in Israel present a glimmer of positive news. According to the Times of Israel, an article reported a unique tension within the Israeli leadership involving Prime Minister Benjamin Netanyahu and the IDF Chief of Staff, Eyal Zamir, regarding military action associated with Iran:
In an “unprecedented confrontation,” disputes have emerged between Prime Minister Benjamin Netanyahu and IDF Chief of Staff Eyal Zamir concerning military action orders related to Iran, as reported by Channel 12. Zamir is purportedly opposing these orders, seeking formal written approval from Netanyahu to ensure their legality.
The situation escalated in the last 24 hours, especially given the constraints of military censorship in Israel. Zamir received a vague “instruction” from political leaders, prompting him to request substantial discussion before proceeding while also asking for legal documentation from Netanyahu.
Returning to our primary discussion.
By Tsvetana Paraskova, an experienced energy and commodities journalist contributing to OilPrice.com, focusing on global energy markets and the geopolitical factors influencing supply and demand. Originally published at OilPrice
- Oil tanker freight rates have skyrocketed tenfold due to the ongoing conflict over Iran, with shipping crude from the U.S. Gulf Coast to Asia costing as much as $80 million per journey.
- Orders for U.S. crude from Asia have nosedived by 50%, which could lead to the lowest November shipment levels in seven years.
- Record freight expenses are radically altering global oil trade dynamics, raising prices for nearby crude while compelling U.S. and African producers to offer significant discounts.
The conflict concerning Iran has rendered tanker voyages inefficient, causing vessel availability to plummet and freight costs to hit unprecedented highs. This has all but removed the incentive to transport oil from the U.S. Gulf Coast to Asia.
Earlier this month, shipping crude oil from the U.S. Gulf Coast to China reached staggering prices of $80 million, a tenfold increase over past averages prior to the conflict. Though freight rates have slightly decreased since the peak seen in early October, they remain approximately $60 million for a supertanker shipment to Asia this week, a price point that is deterring Asian refiners from placing extensive crude orders for November delivery.
This month, orders from Asian refiners for U.S. crude have decreased by about 50% compared to September, amounting to roughly 25 million barrels for delivery in November, as reported by anonymous traders to Bloomberg.
If this downward trend continues throughout the trading cycle, November could see the lowest influx of U.S. crude oil into Asia in seven years, according to vessel-tracking analysts.
U.S. crude oil and petroleum exports initially surged to a record high during the early stages of the Middle East war. However, the conflict and efforts by Middle Eastern producers to navigate oil shipments out of the Strait of Hormuz have disrupted the global tanker market, compounding existing supply chain challenges.
The ongoing Iran conflict has reshaped trade routes and patterns, consequently tying up more tankers in inefficient, prolonged journeys.
The increased oil flows from the Strait of Hormuz, primarily facilitated through ship-to-ship (STS) transfers in the Gulf of Oman, are causing supertankers to remain idle for weeks while awaiting these transfers, thus restricting the availability of VLOCs for other key global routes, such as those between the U.S. Gulf Coast and Asia.
The Gulf of Oman’s shuttle fleet has expanded to around 80 VLCCs; however, the average round-trip duration has climbed to 23 days, significantly exceeding the optimal 9-10 day timeframe from Basrah in Iraq to Sohar offshore Oman, as noted by Kpler.
Moreover, unprecedented rates for shipping crude from the Persian Gulf and the Gulf of Oman are enticing tankers into the high-risk yet lucrative Middle Eastern trade, leaving other markets facing a vessel shortage.
The surge in freight costs is now a primary concern in the market, according to Randy Hawkins, Vice President of International Crude Oil Supply and Trading at Valero Energy, during the U.S. refiner’s recent earnings call.
“Moving a VLCC from the Gulf Coast to Asia now averages around $30 to $35 per barrel, in stark contrast to the average of about $5 per barrel in 2025,” Hawkins mentioned.
This surge in freight costs is instigating serious disruptions in global crude pricing as refiners seek barrels closer to home, necessitating discounts on more distant barrels to reconcile with the freight expenses.
In response to these challenges, Asian buyers are increasingly turning to Middle Eastern crude and are opting for delivered pricing to mitigate costs.
Meanwhile, European refiners are making the choice to procure nearby volumes to avoid the spike in tanker rates.
Consequently, the heightened demand for European and Middle Eastern crude is inflating premiums for certain grades, with the Dated Brent benchmark recently reaching a remarkable $20 per barrel premium to Brent. Norway’s medium sour crude, Johan Sverdrup, has also achieved an astonishing $24 per barrel premium to Brent, according to data from Wood Mackenzie.
Conversely, African and U.S. crude grades have experienced a decline in premiums, with widening discounts as a result of the steep freight costs associated with shipping these products on long-distance journeys to Asia. West African crude prices have fallen to record-low discounts, with certain grades trading at $20 below benchmarks to offset shipping costs.
In the U.S., the premium for WTI at the Midland East Houston (MEH) hub has dropped to $0.25 per barrel above WTI, down from over $3 in early September, according to estimates by Link Data Services referenced by Bloomberg.
Similarly, the premium for the U.S. Gulf of Mexico’s medium-sour Mars crude, akin to many Middle Eastern grades, has fallen to $6 per barrel, down from $17.50 at the end of March.
