Freight costs drive oil prices: Heavy crude from the Americas faces export difficulties, tightening supply in Asia and Europe

(1) Freight rates have soared, suppressing exports. Combined with U.S. refineries operating near full capacity, heavy crude oil—which is relatively cheap and favored by refiners—is piling up across the Americas. (2) There is an unusual divergence in the global oil market: North and South America are oversupplied, while Asian and European buyers face shortages, with benchmark oil prices remaining above $100 per barrel. TP ICAP energy experts state, "This is entirely a freight issue." Venezuela, the U.S., and Canada each produce more than they consume domestically, requiring exports to Asia to balance the market. (3) U.S. diesel prices have soared. Heavy crude should be in high demand since it yields more diesel than light crude, but Gulf Coast refinery purchases have already reached processing capacity limits. Venezuelan oil exports have surged after the U.S. arrested former president Maduro and pushed to revive the country's oil industry. Canadian production has reached record highs, and the U.S. has released over 130 million barrels of crude from the Strategic Petroleum Reserve. (4) Tanker costs have surged due to ship-to-ship transfers in the Gulf of Oman occupying large shipping capacity. Last week, the cost to ship crude from the U.S. Gulf to Europe via supertanker reached about $46 million, or roughly $24.5 per barrel; before the Iran war at the end of February, it was only $6.5 million, approximately $4 per barrel. (5) Last week, the cost for tankers transporting oil from the Americas to Asia rose to over $80 million, or about $40 per barrel; at the start of this year, it was just $10 million to $15 million.