Oil Products Could See Rare Voyage from US Gulf to West Coast as Asia Arb Economics Collapse

Enquiries are being made to ship oil products from the U.S. Gulf Coast to the West Coast in an attempt to pry open a trade window long replaced by the Asia-to-U.S. West Coast arbitrage, according to market sources and shipping fixtures.

The STI Mystery and the Hafnia Violette have been placed on subjects to each ship 38,000 metric tons of distillates from the U.S. Gulf Coast on March 27 and April 4, respectively, heading to the U.S. West Coast, shipping fixtures show. The STI Mystery could be carrying jet fuel, according to one of the fixtures.

Shipping sources could not confirm if the fixtures have been finalized and said they could still be cancelled. But if these do materialize, they would be the first such movements in almost a decade. The last time a tanker plied this route was in April 2017.

This development has been of interest to North Asian suppliers, which accounted for over 95% of the jet fuel imports and over 60% of the gasoline blending component imports to the U.S. West Coast in 2025. However, the Iran war which started at end-February has sent oil product prices in Asia skyrocketing, slamming shut the spot arbitrage window for these Asia-origin trade flows.

The benchmark FOB Singapore jet fuel price was assessed at $228.32/bbl while Los Angeles jet fuel was assessed at $178.75/bbl on March 23, according to OPIS data. This is up sharply from the Jan. 2 price of $81.27/bbl and $110.46/bbl for Singapore and Los Angeles jet fuel, respectively.

Another factor that could have helped lift interest in the Gulf-to-West Coast trade is the U.S. government’s 60-day waiver of the Jones Act starting March 18, Asia market sources said. The waiver essentially allows foreign-flagged tankers to transport oil between U.S. ports instead of cargoes competing for a limited number of U.S.-flagged tankers.

Prior to the waiver, foreign-flagged tankers could still be used between U.S. ports, but these typically entail a processing stop at another nearby foreign port such as the Bahamas, adding to shipping costs nonetheless, shipping sources said.

Both the STI Mystery and the Hafnia Violette are Marshall Islands-flagged.

If normal oil flows out of the Middle East are restored, North Asia should still be the more economical source of product imports for the U.S. West Coast, both in terms of product prices and shipping costs, Asian market sources said. Shipping fixtures showed the freight rate for STI Mystery at over $6 million and the Hafnia Violette at $4.9 million. It cost around $2 million to ship a similar-sized cargo of distillates from South Korea to the U.S. West Coast, prior to the Iran war.

But until normality is restored, more unusual cargo flows in the interim can be expected, not just in the U.S. but in other regions as well, said a trading source.

—Reporting by Hanwei Wu, hwu@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com