The increase in tanker transportation rates has severely limited heavy oil exports and led to the accumulation of a large volume of this type of oil in the Americas. Heavy oil, which is typically favored by refineries due to lower costs, is currently being produced in the United States, Venezuela, and Canada in excess of domestic needs.
Impact of Transportation Rates on the Oil Market
With rising transportation rates, American refineries have approached maximum capacity, thus reducing the possibility of exporting oil to Asian and European markets. This situation has created an unusual gap in the global oil market, where buyers in Asia and Europe are facing supply shortages, and benchmark prices are currently above $100 per barrel.
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Transportation rates from the Gulf of America to Asia have reached over $80 million, or about $40 per barrel. This is while transportation costs were between $10 to $15 million earlier in 2023. This increase in costs has arisen due to restrictions on oil transfer in the Gulf of Oman and a shortage of ships for cargo transport.
Production and Export of Heavy Oil
Heavy oil typically costs less than light oil because refineries in Asia and many American and European refineries are generally configured to process it. However, Gulf refineries in America, due to uncertainty in heavy oil supply, are now buying as much of this type of oil as possible. Meanwhile, Venezuela's oil exports have increased due to recent efforts to revive the country's oil industry.
Currently, American refineries are under pressure to maximize supply due to rising diesel prices. However, they are only able to process a limited amount of heavy oil. Although the supply of heavy oil from Venezuela and U.S. emergency reserves has been effective, the high transportation costs now act as an additional barrier to the export of this type of oil.
Analysts and traders believe that these changes could lead to an increase in heavy oil storage in the Americas, consequently impacting global oil markets.
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