Key facts
- Valero's Randy Hawkins said freight from the US Gulf Coast to Asia rose to $30 to $35 a barrel from about $5 a year earlier.
- Phillips 66's Brian Mandell said each $1 widening in the WCS-WTI differential is worth about $140 million to the company.
- Phillips 66 said it secured more than 40 time-charter vessels before the Iran conflict, covering about 40% of its asset-based shipping needs.
- Arrow Shipping analyst Delia He said each extra dollar of freight was matched by at least eight dollars of diesel margin growth.
- Marathon Petroleum expects record Canadian heavy crude processing in the fourth quarter, and CEO Maryann Mannen said margins are expected to stay elevated through at least mid-2027.
- More than 70% of US Gulf Coast refining capacity is configured to process heavier crude, the report said.
Higher tanker freight rates tied to the Iran conflict have widened discounts on heavy crude grades, giving US Gulf Coast refiners a cost advantage over Asian rivals, executives said after reporting third-quarter profits, Reuters reported on November 6.
Security threats around the Strait of Hormuz, a maritime chokepoint through which about one-fifth of global oil and liquefied natural gas supplies passed before the war started, have disrupted tanker traffic. Higher war-risk insurance premiums and longer voyages have driven up shipping costs.
US Gulf Coast refiners could buy discounted heavy crude produced closer to home, including from Canada and Venezuela, while Asian rivals faced higher freight and insurance costs to import similar grades through longer and riskier routes. US refining margins more than doubled in the third quarter.
Rising freight costs have widened discounts on Canadian heavy crude, including Western Canadian Select, which typically trades below US benchmark West Texas Intermediate. More than 70% of Gulf Coast facilities are configured to process heavier crude, the report said.
"The main story right now in the market is freight rates," Randy Hawkins, vice president of crude and feedstocks supply and trading at Valero Energy, said on a post-earnings conference call. Hawkins said freight costs for shipping crude from the US Gulf Coast to Asia have jumped to $30-$35 a barrel from about $5 a year earlier.
Gary Simmons, Valero's chief operating officer, said higher freight rates give the company an advantage into typical export markets in Latin America, where it mainly competes with European barrels.
Ample heavy crude supplies from Canada and Venezuela, combined with elevated freight rates, have widened the WTI-WCS differential, lowering feedstock costs, the executives said. For Phillips 66, every $1 widening in the WCS-WTI differential is worth about $140 million in gains, executive vice president of marketing and commercial Brian Mandell said.
Higher shipping costs have also been more than offset by stronger fuel margins, said Delia He, an oil and tanker market analyst at Arrow Shipping. "For every extra dollar of freight, the diesel margin has grown by at least eight," He said.