Heavy crude oil is accumulating across the Americas as soaring shipping costs and near-maximum U.S. refinery utilization prevent exports from reaching hungry markets in Asia and Europe. while global benchmarks remain above $100 per barrel, producers in Canada, Venezuela, and the U.S. face a growing surplus they cannot easily move.
The $40-per-barrel shipping hurdle to Asia
The cost of moving oil from the U.S. Gulf Coast to Asia has become a massive barrier to trade. As reported by Signal Maritime analyst Georgios Sakellariou, the cost of hiring a supertanker for this route rose to more than $80 million last week , which translates to roughly $40 per barrel. This is a staggering increase from the $10 million to $15 million range seen at the start of the year.
This spike in freight rates is largely due to vessel scarcity and logistical bottlenecks. TP ICAP energy specialist Scott Shelton noted that ship-to-ship transfers in the Gulf of Oman are currently tying up vessels worldwide, reducing the availability of ships for other routes. This scarcity has caused the cost of shipping from the U.S. Gulf Coast to Asia to more than quintuple since February.
U.S. refineries hitting a 28-year capacity high
U.S. refining capacity is also acting as a physical bottleneck for the heavy crude surplus. According to the Energy Information Administration, U.S. refineries have operated at an average weekly capacity of 93.5% so far this year, marking the highest level in 28 years. while these refineries are designed to process heavy crude, they are reaching their processing limits, particularly regarding cokers, which convert residual oil into diesel and gasoline.
Many U.S. refineries are also configured for offshore Gulf of Mexico crude, such as Mars Sour, rather than Canadian or Venezuelan oil, which often requires mixing with lighter feedstock to process effectively. This configuration, combined with high coker utilization, is forcing heavy sour storage builds across the Americas.
A price gap between $100 benchmarks and $74 Canadian crude
The inability to export is creating a significant price disconnect between the Americas and the rest of the world. While global benchmarks remain high, specific heavy crude grades have seen prices drop due to the local glut. argus Media reported that flagship Canadian, Colombian, and Ecuadorian heavy crude gardes have all fallen by more than $10 a barrel over the last six weeks.
For example, Western Canada Select was trading around $74 on Thursday, excluding shipping or insurance costs.. Other grades have seen similar downward pressure, with Colombia's main grade, Vasconia, trading at approximately $84 and Ecuador's Oriente at around $76.
Will the Gulf of Oman congestion ease?
Several critical questions remain regarding the duration of this supply imbalance. It is currently unclear how long the vessel congestion in the Gulf of Oman will persist or if the surge in Venezuelan exports will eventually alleviate the pressure on the Americas' storage. Additionally, while Washington has released more than 130 million barrels from its emergency reserve, the long-term impact of this supply on domestic heavy crude storage levels remains unverified.
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