Oil Transport Costs Remain High as Middle East Crude Flows Recover
Brent crude fell about 17% over five trading days after the U.S. midterm elections, trading just above $91 per barrel early Tuesday. Middle Eastern crude flows have nearly recovered to pre-war levels, but high freight and insurance costs continue to burden refiners and consumers.
Brent crude prices fell about 17% in the five trading days after the U.S. midterm elections, trading just above $91 per barrel early Tuesday as Middle Eastern oil flows neared pre-war levels.
Oil is cheaper. Moving it is not.
War risks, insurance premiums and high tanker rates have pushed crude transport costs from about $5 per barrel before the war to as much as $30 a barrel, and sometimes higher.
Supply rebounds, transport costs persist
Vessel-tracking services have signaled for more than a month that crude flows through the Strait of Hormuz and the wider Middle East have recovered close to pre-war levels.
That rebound, alongside weaker global demand amid high prices, is weighing on regional crude benchmarks and fueling concern that an oil glut may be forming. Middle Eastern producers have cut official selling prices to attract buyers as exports rise.
Attacks on vessels have intensified over the past month, while producers are tying up a large share of the global tanker fleet in shuttle trips through the Strait and ship-to-ship transfers in the Gulf of Oman.
“Middle East crude exports have returned to pre-war levels, while refined product flows remain at just 37% of normal,” Ole Hansen, head of commodity strategy at Saxo, said.
Saudi crude discount widens
Saudi oil giant Aramco cut the price of its flagship Arab Light crude for Asian buyers loading in December by $2 per barrel. The price was set at a discount of $6.50 per barrel to the Oman-Dubai average.
That is the steepest discount to the Middle East benchmark since May 2020, during the COVID pandemic. The cost of shipping the crude remains high amid a tanker shortage and elevated war insurance premiums.
The Dubai benchmark’s November contract moved into contango early last week, a market structure in which prices for near-term delivery are lower than prices for later delivery. It signaled that concerns about an immediate crude shortage had eased.
Physical Middle Eastern crude prices also slumped at the end of October as regional flows recovered, reaching pre-war levels on some days.
Oil flows remain exposed to conflict
Higher exports have not made passage through the Strait of Hormuz safer. The ongoing risk and added shipping costs mean that increased crude supply has not brought transport expenses down for refiners and consumers.
Normal trade patterns from before the Iran war may not return, while Gulf producers work to build alternative supply routes. War and insurance risks continue to affect crude flows.
Brent’s decline has coincided with renewed hopes in recent days that the United States and Iran could reach an agreement. The market has seen several attempts at talks break down over the past eight months.
