Soaring oil freight costs are eroding refineries’ margins and raising the prospect of run cuts that could further tighten fuel markets. The International Energy Agency warned of “economic run cuts” at refineries outside the US, as shipping expenses gnaw at profits despite high fuel prices. The Iran conflict and Houthi attacks have disrupted Middle East oil logistics, forcing tankers to take longer routes and pay steep risk premiums.
Delivering a 2 million-barrel cargo of US oil to Asia now costs about $77 million, or $38 per barrel—roughly 40% of a WTI barrel’s value. In Europe, some refineries face negative margins due to expensive shipping. This dynamic means booming headline fuel prices aren’t translating into strong refinery profits, as freight costs must be deducted.
The IEA warned that run cuts at a refining system operating at upper limits, despite tight product markets and low stocks, would be ill-afforded by the global economy.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing