Adjustment Factor in Thailand's Crude: Freight Cost

As petroleum products in Thailand often references Means of Platts Singapore (MOPS) as a proxy marker to its market price, but there comes along an intrinsic problem with it. MOPS is not the actual price being traded in Thailand! So how do we solve this issue?

From what we have adequately covered in the previous blogs that almost all of imported crude oil in Thailand comes from Singapore, that means the quality of crude is well within in the same ballpark as the one the MOPS marker is referencing (because it is the same crude, after all). So, that is a good starting point that we do not have to account for any delta in quality. But what are the other factor that must come into play then?

Freight costs! For bringing crude oil to Thailand from Singapore, we must consider the freighting required between the two locations. Although the distance from Singapore to Thailand is relatively short (typically ranging between 800 to 1,000 nautical miles) which means shipping routes can be completed within a few days, freight costs can vary quite drastically on factors like the size of the tanker (e.g., Very Large Crude Carrier (VLCC) or smaller vessels), the shipping route's congestion, and the availability of vessels.

One associating cost that every refinery wants to avoid when it comes to crude freighting is what is called "demurrage cost". Demurrage costs is the fees incurred when a tanker is delayed beyond the agreed-upon time at a port, either during loading or unloading operations. These costs arise due to inefficiencies such as port congestion, customs delays, slow offloading, or unavailability of infrastructure. Normally, demurrage charges are calculated on a daily basis and can accumulate quickly, increasing the overall cost of importing crude.

Next up, we will move on to price adjustments for petroleum products ex-refinery which range from a very dense product like asphalt to the gas one like LPG.