Global crude oil prices fell by about 3 per cent as at 4:00 p.m. West Africa Time (WAT) on October 20, with Brent crude trading at $106.30 per barrel and West Texas Intermediate (WTI) at $95.68, amid continuing supply and shipping risks in the Middle East.
Brent declined by 3.00 percent, while WTI dropped 2.90 percent, according to the market figures available at the time. The decline came as traders assessed potential changes to Russian energy sanctions against persistent disruptions to crude transportation.
Reuters reported on Tuesday that Asian buyers are increasingly turning to smaller tankers and long-term vessel charter arrangements to manage rising shipping expenses. Some refiners are also purchasing Middle Eastern crude on a delivered basis, transferring responsibility for transportation costs to sellers.
The shipping crisis has intensified since the Iran war disrupted established trade routes and increased the time tankers spend transporting crude through the Strait of Hormuz. Ship-to-ship transfers in the Gulf of Oman have tied up large vessels for extended periods, reducing the availability of very large crude carriers (VLCCs) on other international routes.
The shortage of available tankers has pushed freight costs sharply higher. Shipping crude from the U.S. Gulf Coast to Asia has become particularly expensive, with costs reaching about $40 per barrel, according to the Reuters report. The higher charges have weakened the competitiveness of U.S. crude supplies for Asian buyers and reduced demand for some cargoes from the Americas and Africa.
Asian refiners are responding by using Aframax tankers, which typically carry around 600,000 barrels, and securing vessels through longer-term charter agreements. Buying crude on a delivered basis also allows them to shift the shipping burden to sellers rather than arrange transportation independently.
European refiners are adopting a different approach by favouring crude supplies available closer to their refineries, reducing exposure to expensive long-distance voyages.
These changes are reshaping regional crude trade. Demand for some European and Middle Eastern grades has increased, pushing up premiums, while African and U.S. crude grades have faced wider discounts as sellers attempt to offset the cost of shipping cargoes to Asia.
The Reuters report noted that the Dated Brent benchmark traded at a premium of about $20 per barrel to Brent during the previous week. Norway’s Johan Sverdrup crude also reached a reported record premium of $24 per barrel to Brent, according to Wood Mackenzie data cited in the report.
Some West African crude grades have seen discounts widen to as much as $20 per barrel, according to traders cited by Reuters, as high freight charges make deliveries to Asian buyers more expensive.
Meanwhile, the latest decline in benchmark prices follows a volatile period in which traders have assessed the possibility of easing some U.S. sanctions on Russian energy exports alongside continuing threats to Middle Eastern supply routes. Reuters reported that oil prices eased on Tuesday as markets weighed the potential effect of the sanctions waiver and attacks affecting Saudi Arabia and Yemen.
Despite the pullback in crude prices, shipping constraints remain a concern for refiners and traders. Lower benchmark prices do not necessarily translate into cheaper delivered crude when freight, insurance, and delays continue to add to the cost of moving oil.
The direction of crude prices will therefore depend not only on supply expectations and geopolitical developments but also on whether shipping conditions improve and more tankers become available for international trade.