The Iran conflict has driven up tanker rates and insurance costs, widening discounts on heavy crude and giving US Gulf Coast refiners an advantage over Asian competitors, industry executives said after reporting strong third-quarter results.
Security risks around the Strait of Hormuz, a route that carried about one-fifth of global oil and liquefied natural gas supplies before the war, have disrupted shipping. Longer voyages and higher war-risk premiums have made crude imports more expensive, particularly for Asian refiners that rely on seaborne supplies, as per Reuters report.
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US Gulf Coast plants, by contrast, can process heavy crude sourced closer to home, including from Canada and Venezuela. More than 70% of the region's refining capacity is configured to handle heavier grades.
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As transport costs rose, discounts on Canadian crude, including Western Canadian Select (WCS), widened against the US benchmark West Texas Intermediate (WTI), lowering feedstock costs for refiners.
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Freight has become the market's defining factor, Valero executive Randy Hawkins said on the company's earnings call. Shipping crude from the US Gulf Coast to Asia now costs about $30 to $35 a barrel, up from roughly $5 a year earlier.
Valero chief operating officer Gary Simmons said higher freight also strengthens the company's position in Latin American markets, where it competes with European fuel supplies.
The widening WCS-WTI gap can have a substantial financial impact. Phillips 66 executive Brian Mandell said each $1 increase in the differential is worth about $140 million to the company.
Refiners have also been cushioned by shipping contracts arranged before the conflict. Phillips 66 said more than 40 time-chartered vessels cover about 40% of its asset-based shipping needs. Several other major refiners have secured chartered fleets as well.
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Executives see the supportive conditions extending into 2027. Marathon Petroleum expects record Canadian heavy-crude processing in the fourth quarter, while HF Sinclair said wider crude differentials could persist through the near term and into next year. The outlook depends on how shipping risks, freight rates and fuel margins evolve.
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