Is an Atlantic Basin crude glut on the cards?

Atlantic crude discounts fail to offset high freight to Asia, raising the risk of a regional glut as VLCC availability tightens.

Atlantic Basin crude differentials fell to record lows in mid-October (Argus), but discounts have failed to offset the cost of shipping barrels to Asia. VLCC freight to Ningbo costs $8-16/bbl more from Atlantic origins than from Fujairah over the four weeks to Oct 25, versus $1-3/bbl through 2025. Brazilian, Guyanese and West African grades remain expensive to deliver, leaving more crude to compete for buyers in the Atlantic Basin.

Over the past four weeks, the VLCC freight premium to Ningbo ranged from $8/bbl for West Africa to $14.40/bl for the US Gulf, and $16.50/bl for Guyana, all relative to Fujairah. A narrower Brent-Dubai EFS would improve Atlantic Basin crude's relative pricing, but the scale of the freight disadvantage means a significant narrowing would be needed to make Atlantic grades more competitive against Middle Eastern supply.

US crude is an outlier however. WTI fob USGC strengthened sharply against other Atlantic grades from mid-October, despite the US Gulf premium to Asia being one of the most expensive against MEG grades. US Gulf-Ningbo VLCC freight fell $7.30/bbl last week, compared with around $6/bbl for Brazil and West Africa. Therefore freight rates have not been a driver of WTI's strong performance.

This story was originally published by Breakwave Advisors. Read the full story at Breakwave Advisors →