Record-high tanker freight rates have pushed profit margins for Asian oil refineries processing medium-sour crude into negative territory in September, as rising transportation costs increase the price of delivered crude, the International Energy Agency (IEA) said in its October Oil Market Report.
Shipping costs for very large crude carriers (VLCCs) transporting oil from the Middle East Gulf to Asia reached approximately $36 per barrel in early October, more than five times their level before the Iran war, according to the agency. Freight costs on the US Gulf Coast-to-China route also exceeded $37 per barrel, limiting refiners’ ability to offset higher Middle Eastern shipping costs by sourcing crude from the United States.
Asian refiners face particularly high transportation costs as oil cargoes are transferred through the Strait of Hormuz to secondary tankers for onward delivery, the IEA said.
The resulting increase in delivered crude costs has squeezed refining margins, particularly for facilities processing medium-sour crude, which contains moderate levels of sulfur and requires specialized processing to produce refined petroleum products.
The pressure comes amid broader disruptions to global oil flows and record transportation costs. The IEA said in its October report that rising freight and crude costs had weakened refinery profitability in Europe and Asia, while discounted feedstocks supported higher margins among US refiners.
The IEA’s October 2026 Oil Market Report said that tanker freight costs and higher crude prices were eroding refining margins as oil supplies recovered from earlier disruptions linked to the Iran war. Although Middle Eastern crude exports increased in September, renewed attacks on regional energy infrastructure and shipping threatened to undermine the recovery. The agency also projected global refinery processing volumes would fall to a seasonal low of 81.3 million barrels (mmbbl) per day in October before rebounding to 84.6 million barrels per day by year-end.
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