Rising tanker freight costs driven by increased Chinese purchasing and traders positioning ahead of potential OPEC+ supply releases are diminishing the appeal of US crude for Asian buyers.

According to informed traders, Chinese refiners are rushing to secure crude oil orders to ensure deliveries arrive before year-end, maximizing utilization of import quotas allocated by the Chinese government. This demand surge has directly boosted Very Large Crude Carrier (VLCC) utilization rates, reducing the number of vessels available for Americas-to-Asia routes.

Baltic Exchange data shows current VLCC daily charter rates for US-to-China routes have exceeded $70,000. While this figure remains below the $90,000 daily rate for Middle East-to-China routes, the Americas route requires at least two additional weeks transit time, significantly increasing overall transportation costs.

So-called "arbitrage trades" exploiting regional price differentials to export US crude to Asia have become a prominent feature of the spot market in recent months. This week's purchase of US West Texas Intermediate crude by India's Bharat Petroleum Corporation demonstrates the trade's continued economic viability, though this trend may struggle to persist long-term.

"As OPEC gradually relaxes production quotas, crude cargo volumes east of the Suez Canal continue increasing," said Ed Finley-Richardson, founder and analyst at shipping analytics firm Contango Research. "Ship owners are bullish on market prospects in that region and therefore prefer keeping vessels operating on eastern routes."

Additionally, traders note that Middle East crude market indicators are rapidly weakening, specifically reflected in narrowing Dubai crude benchmark spreads and simultaneous compression of differentials for Oman crude, Murban crude, and other grades. This suggests that crude from neighboring Persian Gulf countries will become more competitive compared to long-haul American crude.

Notably, while OPEC+ continues adding crude supply to the market, the US domestic crude market is showing preliminary signs of supply tightening. Government data reveals US crude inventories have declined for the second consecutive week, with current stock levels falling to their lowest since January this year.