Moving Oil Is Now the Price Problem

Putting a barrel of American crude on a ship to Asia now costs $40. Before the U.S.-Israeli war on Iran began in February, it cost $8.60. At that rate, shipping alone equals nearly half the price of a West Texas Intermediate futures contract, Reuters reported in a story carried by Hydrocarbon Processing.

The oil market's problem used to be how much crude exists. Now it is whether the crude can get anywhere, be refined, and be stored once it does. Tanker freight is pricing US barrels out of Asia. A storm has shut in most of the Gulf's output. Emergency stockpiles on both sides of the Atlantic are being drained to cover the gap. And a presidential promise of restraint towards Iran, whatever it did to screens on Friday, repairs none of it.

The freight toll

Tanker rates are at record highs, Reuters reported, which puts US crude out of reach for Asian refiners and sends them shopping in the Middle East and Latin America. Chartering a very large crude carrier to haul 2 million barrels from the Gulf of Mexico to China in November hit $80 million this week, according to shipbroker Simpson, Spence & Young data on LSEG.

The bookings show how thin the margin has become. Japan's Cosmo Oil provisionally chartered a VLCC for $81 million to load US oil on November 19-21, according to Reuters' sources. Attempts by South Korea's SK Energy and trading house Trafigura to book ships at $76 million to $77 million failed, a shipbroker said. Traders and shipbrokers told Reuters the economics of the US Gulf-to-China route are no longer viable, which shuts the arbitrage window.

Sparta Commodities senior analyst June Goh said VLCC rates on the US Gulf to Asia and Fujairah to East routes have spiked more than 300% since mid-August. She blamed "hugely inefficient ship-to-ship (STS) activities as a workaround to the Strait of Hormuz closure" plus more Atlantic Basin crude heading east, which leaves less open tonnage.

Murban crude from the United Arab Emirates is the beneficiary. Its premium to Dubai quotes rebounded to over $11 a barrel on Thursday as refiners weighed a switch, Reuters said. An analyst at a trading firm put Murban about $2 a barrel cheaper than WTI on a delivered basis to Asia. Goh cautioned that US barrels will keep arriving anyway while Hormuz flows can still be disrupted.

The export data have yet to register this. Dallas Fed economists wrote Thursday that US crude exports rose from 4 million barrels a day in February to an average of 5.2 million in May, as reported by the Daily Caller. Exports ran about 4.8 million barrels a day in the week ending Oct. 2, per Energy Information Administration data. Oil & Gas 360 noted, though, that many September shipments, which averaged approximately 3.5 million barrels a day against 3.4 million in August according to S&P Global Commodities at Sea, were arranged before freight spiked. The next round of purchases will carry the new price.

A Gulf shut in

The Gulf of America adds a second bottleneck. The Marine Minerals Administration estimates that 62.89% of daily oil production and 57.35% of daily natural gas production is shut in, according to BSEE. Personnel have left 121 production platforms, 32.61% of the 371 manned platforms in the Gulf. Undamaged facilities will restart as soon as standard checks are complete, the agency said.

Ellen Wald of the Atlantic Council told the Daily Caller to expect some disruption to US exports as ships wait out the hurricane before approaching Houston and other Gulf ports. Even without a storm, the Energy Policy Research Foundation's Max Pyziur noted, damaged vessels and impaired chokepoints at Hormuz and Bab el-Mandeb push cargoes around the Cape of Good Hope, adding time to every delivery.

Reserves doing the work

When pipes and ships cannot close the gap, stockpiles do. The International Energy Agency agreed on Wednesday to accelerate planned releases of about 100 million barrels, prioritising diesel, Reuters reported. Germany will release up to 15 million barrels of diesel, heating oil and crude, making Europe's largest contribution under the G7-backed effort. Economy Minister Katherina Reiche told Reuters, "Available crude oil alone is not enough," adding that diesel and heating oil go first.

Brussels did not volunteer. Reuters reported that Washington led a pressure campaign on the EU to draw down emergency diesel, with the Trump administration warning that inaction could lead to an American ban on diesel exports. Germany had already pledged 19.5 million barrels under the IEA's 400-million-barrel March programme, the largest commitment by any EU country, ahead of France's 14.6 million barrels. Not all of those volumes have reached the market. JPMorgan estimates Europe still has about 40 million barrels left to release.

The American cushion is thinner. In September the Strategic Petroleum Reserve held 284 mb of crude, its lowest level since 1982, the Dallas Fed said. Draining at 1.2 mb/d, it could last less than six months if official estimates of an 80 mb operational minimum are right. Because crude production was essentially flat while exports climbed, US stocks of crude and refined products sit at multiyear lows.

Refining is the next pinch. Crack spreads, the gap between crude and wholesale diesel, gasoline and jet fuel, have exceeded levels last seen in 2022, following Russia's invasion of Ukraine, the Dallas Fed said. Retail diesel has never exceeded gasoline by as much as it does now. Ukrainian drone strikes cut Russia's refining capacity by as much as 60 percent over summer 2026, though estimates swing widely from month to month. Even after Hormuz flows normalize, the Dallas Fed expects US fuel prices to stay unusually high relative to crude because of diminished refining operations.

Diplomacy without a tanker

Against that backdrop came Donald Trump's late Thursday post on Truth Social: "We will not be attacking Iran at any time prior to the midterm elections", which are on November 3. Brent futures fell approximately 1.7% to $102.55 a barrel in Friday morning trading, and WTI declined 1.4% to $90.22, Oil & Gas 360 reported. Brent had gained approximately 4% on Thursday on renewed supply worries. Al Jazeera reported that some analysts read the post as an attempt to talk prices down.

Even on that reading, the post was aimed at the price on the screen, and the screen is not where the shortage lives. Iranian Foreign Minister Abbas Araghchi said Tehran is reviewing the US response to its seven-day plan to reopen the Strait of Hormuz and will reply in the "next few days". Iranian media reported "massive explosions" in the southern strait on Friday, with Fars citing military sources who said tankers on unauthorised routes may have struck sea mines. US Vice President JD Vance said on Tuesday that any deal must include a "meaningful" cut in Iran's uranium enrichment capacity.

Deloitte forecasts WTI averaging US$76.50 a barrel in 2027, down from a projected US$90 for 2026. It also observed that "Producers view the current price environment as temporary, or uncertain, rather than rooted in a fundamental supply-demand shift," That helps explain why a promise from Washington lowers a futures price while a VLCC still costs $80 million. Futures can reprice in an afternoon. Hulls, platforms and refineries take months.