ASIAN oil refiners are grappling with a jump in global freight rates that shows no sign of abating, driving up costs of crude imports from all regions in the fourth quarter, industry officials said.

The cost of shipping crude from the Americas, Europe, Africa and the Middle East to Asia has surged over the past two weeks as companies shunned nearly 300 tankers on fears of violating sanctions against OPEC members Iran and Venezuela.

Higher freight rates and a jump in crude premiums after the Saudi oil attacks in mid-September have so far added about US$3 a barrel to November-lifting oil cargoes from the Middle East to China, trade and shipping sources said.

“We’ve been in a net loss for most months so far this year, and the fourth quarter doesn’t look good either, as premiums for Middle Eastern grades are high and freight rates have more than doubled,” an official with a Chinese State-owned refinery said.

Refining margins in China will remain squeezed at least in the near term as its domestic fuel pricing tracks only the weighted average of global benchmark Dubai, West Texas Intermediate and Brent prices, excluding premiums and freight costs, he said.

In contrast, Indian refiners want refined fuel cracks to gain further to offset the impact of rising freight as pump prices of gasoil and gasoline are linked to their benchmarks in the Arab Gulf and Singapore.

“If this freight rate is not compensated by an increase in product cracks, then it is going to affect margins,” said R. Ramachandran, head of refineries at India’s Bharat Petroleum Corp.

The increase in shipping rates has also dented Asia’s demand for supplies from the United States, West Africa and Europe.

“A West African oil shipping fixture that we used to do for US$3 million to US$4 million has gone up to US$8 million to US$9 million,” a source at one of the Indian refineries said.

Record shipping rates and a narrowing Brent-WTI price spread have shut the arbitrage window for U.S. crude to Asia.

Very large crude carrier (VLCC) freights for West African crude to China and India have more than doubled.

An official at Indian Oil Corp. (IOC) said the Brent-WTI spread had to be at least US$6 a barrel for U.S. crude to flow to India but higher freight had further upset the economics.

“Refiners are looking at buying more short-haul oil, but Middle Eastern oil is mostly limited by OPEC quotas so there is not much choice for us,” the IOC official said.

BPCL’s Ramachandran said the impact of higher freight rates would be accentuated for long-distance cargoes from the United States and Africa unless product cracks rose or oil prices dropped to make those crudes attractive.

The cost of sending a VLCC from the U.S. Gulf Coast to South Korea, Asia’s top buyer of U.S. oil, hit a record US$14 million last week. (SD-Agencies)