Written by: Ahmed Abdel Salam
Asian refineries are facing increasing pressure as a result of record-high shipping and insurance costs, which are eroding profit margins and threatening to undermine the recovery of oil exports from the Middle East, despite the recent notable rebound in crude shipments. Despite the gradual increase in crude supplies and exports exceeding high levels, logistical burdens remain an obstacle to fully capitalizing on these supplies. Asian refineries have historically relied on the Middle East to secure a large portion of their oil needs, but rising oil transport costs have imposed unprecedented challenges on the economic viability of refining operations.
Shipping challenges and their impact on profits
The global energy trade has witnessed radical shifts, as transport efficiency has declined due to security risks and recurring disruptions in vital waterways. Shipping and insurance costs have risen unprecedentedly, forming a huge portion of the final cost of delivering oil to refineries. This sharp rise has caused shipping costs to consume the largest share of total refining margins in Asia, compared to levels seen in other regions such as the US Gulf Coast and Europe, causing Asian buyers to suffer from poor competitiveness despite continued global demand for refined fuel.
Gulf producers' response and price pressures
In contrast, producers in the Gulf region are seeking to maximize shipment volumes to recover lost revenue, yet high logistical costs are pushing customers to seek alternatives or reduce operating rates. To maintain shipment flows and buyer interest, some sellers have resorted to offering significant price discounts to compensate for high transport costs. Market indicators confirm that the challenge is no longer limited to providing crude quantities, but has become closely linked to the ability of the parties involved to make shipping and delivery operations financially feasible for buyers in various global markets.
