Record Tanker Rates Leave Heavy Crude Stranded in the Americas
The Middle East crisis has driven tanker rates to all-time highs and created a shortage of vessels. This oil logistics problem is now causing a ripple effect, tipping the heavy crude market in North and South America into oversupply—while Asia and Europe grapple with a shortage of heavy grades. Canada is producing over 5 million barrels of crude daily, most of it heavy crude. Some 4 million…
Record tanker rates have pushed heavy crude to all-time highs in the Americas, leaving much of it stranded. The Middle East crisis has created a shortage of vessels, exacerbating the oil logistics problem and causing a ripple effect on the heavy crude market in North and South America. Canada is currently producing over 5 million barrels of crude daily, with most of it being heavy crude.
Around 4 million barrels of this is shipped to U.S. refineries each day. Venezuelan production has also increased since the U.S. took control of the country's oil industry. However, record freight costs have dampened demand for heavy crude in Canada, Colombia, and Ecuador, causing prices to drop by around $10 per barrel in recent weeks.
Western Canadian Select, a flagship grade, reached $74 per barrel last week before bouncing back to $79.50 at the time of writing. Ecuador's Oriente also recovered, trading at over $84 per barrel after dropping to $76 last week. Colombia's Vasconia, the most expensive of the three, may have increased further due to tanker attacks in the Strait of Hormuz.
Despite prices being much lower than Russian Urals and Iran Light, they do not include freight costs and insurance, which have reached up to $40 per barrel. Heavy crude is in especially strong demand due to the global diesel crunch, as it yields more diesel than lighter grades. Global tanker rates have surged this year due to ship-to-ship transfers outside the Strait of Hormuz, using smaller carriers to sneak oil through the Hormuz and load it on supertankers in the Gulf of Oman.
This has resulted in supertanker rates from the Gulf to Asia reaching $1.4 million daily. Shipping costs on routes from the U.S. Gulf Coast to Europe and from the Americas to Asia have also surged significantly. Refiners in Europe and Asia are reluctant to purchase heavy crude at these prices, leading to a market imbalance. The diesel crunch is expected to persist as heavy crude barrels remain stuck in the Americas due to freight costs, and there are few alternative suppliers of the same scale as Canada.
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