Freight now makes up roughly a fifth of the cost of a crude cargo, and Japan is absorbing the sharpest share of that bill. Longer routes around Hormuz and the Cape of Good Hope, a shrinking pool of available supertankers, and a push to rebuild depleted reserves are converging on Tokyo at once.
Freight has become a major driver of what refiners pay for crude, now accounting for roughly a fifth of the cost of a crude cargo. The very large crude carrier, or VLCC, can move about 2 million barrels in one voyage, but these ships are spending more time at sea as refiners search farther afield for supplies. Indian buyers, for instance, are now reaching into Guyana and Brazil, committing tankers to journeys of 30 to 40 days.
Hormuz shuttle runs tie up capacity
Around 60 vessels are carrying crude through the Strait of Hormuz to the Gulf of Oman, where it is ship-to-ship transferred to other tankers. VLCCs waiting for those transfers reportedly spend around 10 days in queues, and the Hormuz shuttle to Fujairah or Sohar adds $15-20 per barrel, equivalent to $20 million for a fully loaded VLCC. As a result, VLCC earnings on the Middle East-to-Asia route have passed $1.2 million a day, compared with around $150,000 in February, and rates between the Middle East and China have doubled since the end of summer.
Japan pays the longest route's price
A VLCC voyage from the US Gulf Coast to Japan now costs about $53 million lumpsum, or roughly $26-28 per barrel, sailing around the Cape of Good Hope on a journey averaging 50 days. Since the war between the US and Iran closed Hormuz in March, the US has become Tokyo's largest crude supplier: Japan imported 860,000 barrels a day from the US in August, 35% of its 2.45 million barrel-a-day total, up from just 65,000 barrels a day in February. Saudi Arabia and the UAE, which jointly supplied 80% to 90% of Japan's crude before March, have seen their combined share shrink to around 50%.
Reserve rebuilding adds another buyer
Japan's government-held crude stood at 263 million barrels, or 103 days of cover, when the crisis began, before an initial release of about 80 million barrels in March and a further 36.5 million barrels in July left reserves at roughly 182 million barrels by the end of that month. In August, a committee at Japan's Ministry of Economy, Trade and Industry approved a program to restore reserves to about 90 days of cover by fiscal 2027, which would mean replenishing roughly 48 million barrels. State energy agency Jogmec has since bought Murban crude for its Shibushi stockpiling base under tenders issued on August 28, with delivery scheduled between October 15 and December 14.
That replenishment push comes as the US has less room to keep supplying Tokyo. The US strategic reserve stood at 285 million barrels in mid-September, down from 415 million in February, against a legal floor of 252.4 million barrels, and the pace of withdrawals has slowed from 1.1-1.2 million barrels a day to about 60,000 barrels a day since July. US crude exports have already eased from 5.6 million barrels a day to 3.7 million barrels a day in August, with Japan now competing against South Korea for the remaining cargoes.
Source: Oilprice.com
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