MediumI Geo-Economics & Chokepoints20 October 2026, Tuesday
Freight costs push Asian refiners into smaller tankers and delivered cargoes
Reuters reported on 20 October that record freight rates are pushing Asian refiners to charter Aframaxes instead of supertankers and to buy on a delivered basis. Vitol says about 80 VLCCs are tied up in shuttle runs around Hormuz.
According to the Reuters report carried by AsiaOne, Taiwan's CPC bought six Aframax cargoes last week; it normally charters two or three VLCCs a month. An Aframax carries about 600,000 barrels, a VLCC about 2 million. South Korea's SK Energy chartered the Aframax Samos to load US crude in early November for 23 million dollars, according to a shipbroker. Kieran Gallagher, Vitol's head of Asia, said about 80 VLCCs are now tied up in shuttle voyages around Hormuz and that shipping US crude to Asia has risen to 40 dollars a barrel.
In October 2026 the route, not the grade, sets the price spread. OilPrice.com reported on 20 October that record freight has effectively shut the US Gulf Coast–Asia arbitrage, and ship-to-ship transfers in the Gulf of Oman are holding supertankers for weeks. Cyprus Shipping News said the Gulf–China VLCC route (TD3C) earned 1,356,523 dollars a day on 15 October, against 603,486 dollars on the US Gulf–China route (TD22). TD22 was up 108.2% in a month. Reuters said ADNOC sold delivered cargoes to Asian buyers for the next two months, and Saudi Aramco did so for November, both absorbing the freight themselves.
Distant crude that cannot reach Asia on a 2-million-barrel ship is being pushed to a discount. Reuters said differentials for some West African grades fell to an all-time low of minus 20 dollars a barrel, while the North Sea Dated Brent premium set a record above 20 dollars last week. OilPrice.com cited Wood Mackenzie data showing Johan Sverdrup's premium to Brent at 24 dollars. K Y Lin, chairman of Formosa Petrochemical, said gross refining margins above 40 dollars are being eaten up by freight, while net margins on Middle East crude remain above 10 dollars.
Talay assessment
Bottom line
With 80 VLCCs tied up around Hormuz, Atlantic–Asia trade is being cut by ship availability rather than price. Asian buyers are turning to 600,000-barrel tankers and delivered Middle East crude, while US and West African grades are pushed to a discount. The most likely path is that this two-bloc pricing persists through November while the 80 VLCCs remain tied up.
Likely effects
- Crude differentialsNegativeWeeks
West African crude has fallen to minus 20 dollars while the Dated Brent premium tops 20 dollars; barrels of similar quality trade at two different prices because of the route.
- Producer revenueNegative1–6 months
On delivered sales Aramco and ADNOC carry the freight; a VLCC cost of 1.36 million dollars a day comes straight off the producer's net revenue per barrel.
- TürkiyeNegativeWeeks
As European refiners turn to nearby crude, competition rises for West African and North Sea cargoes arriving in the Mediterranean; Turkish refiners' crude costs may rise with the premium.
Possibilities, ranked
- 1The tie-up persists55%
VLCCs stay on the Hormuz shuttle and Asia carries Aframax and delivered purchases into December loadings.
Watch: Weekly Baltic Exchange readings for TD22 and TD3C
- 2Freight eases in part30%
Sanctioned tankers returning to legitimate trade and a shadow-fleet waiver add tonnage, and TD22 falls.
Watch: OFAC publishing an approval mechanism for changes in tanker status
- 3The strait opens and the fleet is released15%
Hormuz transits rise, part of the 80 VLCCs return to the Atlantic and the arbitrage reopens.
Watch: Daily Hormuz transits on IMF PortWatch rising above 20
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- VLCCs tied to Hormuz▼ ~80
- TD22, month on month▼ +108.2%
- West African differential▼ −$20/bbl