Record tanker rates force oil sellers to cut prices as freight adds about $33 a barrel

Freight costs are now changing who buys which crude and at what price. OilPrice reports that shipping costs are pushing delivered prices above what refiners will pay, so sellers must cut their price differentials or look for buyers closer to home. Chinese refiners have been prominent among the buyers pulling back.

The numbers behind this are large. Rates for very large crude carriers (VLCCs) on the benchmark route from the Gulf to East Asia set a record above $637,000 a day on October 8, about 43 times the roughly $30,000 a day of early January, according to Gulf News. At those rates, freight adds almost $33 to the cost of each barrel, about 27% of its delivered price. Ship-to-ship transfers outside the Strait of Hormuz have grown from almost nothing before the war to more than six million barrels a day, according to one shipping analysis. Chinese independent refiners have been buying more crude from the Atlantic Basin.

Import-dependent economies feel the cost directly. In Pakistan, liquefied petroleum gas (LPG) prices have surged since the closure of the Rahimdad-250 border post, Dawn reports. Market participants have asked the government to move from monthly to weekly or daily pricing, as it does for petroleum products, and to stop linking prices to Saudi Aramco's contract price. A similar closure of the Gabd-Rimdan crossing with Iran in June stranded hundreds of LPG trucks and produced shortages in Karachi and Punjab.

The Pakistani request reflects a basic pricing mismatch: a monthly administered price set against a fixed benchmark cannot track a delivered cost that changes daily, so it produces shortages when the set price falls below the delivered cost.