Asian Refiners Turn to African and Brazilian Oil as Tanker Freight Rates Fall

Asian oil buyers are increasing purchases of crude from Africa and Brazil after tanker freight rates dropped sharply from record highs, making supplies from the Atlantic Basin more affordable, according to traders, shipbrokers and market analysts.

China’s Unipec, the trading arm of state-owned refiner Sinopec, bought two cargoes of Congolese Djeno crude last week at discounts of about $22 a barrel to dated Brent on a free-on-board basis, according to traders familiar with West African oil markets.

Unipec has alsoAsian Refiners Turn to African and Brazilian Oil as Tanker Freight Rates Fall

provisionally chartered two Suezmax tankers to transport West African crude to Asia at freight rates of 475 and 410 on the Worldscale system. It also booked a very large crude carrier (VLCC) at a rate of 500 for an early December loading.

South Korea’s largest refiner, SK Energy, has provisionally chartered a Suezmax tanker to carry Gabonese crude to Ulsan in December at a Worldscale rate of 380.

Sinopec did not immediately respond to a request for comment, while SK Energy declined to comment.

Analysts at consultancy Energy Aspects said in a November 9 note that lower long-distance VLCC freight costs were making crude grades from west of the Suez Canal more attractive to Asian refiners. Higher premiums for Russian ESPO crude could also encourage Chinese buyers to purchase heavier Angolan grades.

The shift follows a sharp rise in shipping costs last month, when tanker freight rates reached record levels. Middle Eastern producers increased exports, while some shipments were transferred between vessels outside the Strait of Hormuz to reduce exposure to attacks linked to the US war on Iran.

Demand for tankers also increased after a US blockade disrupted Iranian exports, prompting Chinese independent refiners to seek alternative non-sanctioned supplies. Their efforts to use remaining crude import quotas before the end of the year added to shipping demand.

High freight costs subsequently discouraged Asian refiners from making purchases, putting pressure on spot prices. The situation has since changed as more tankers have become available after completing deliveries.

Baltic Exchange data showed freight rates for VLCCs, Suezmax and Aframax vessels had fallen by around 50% from their peaks last month, excluding VLCC loadings inside the Strait of Hormuz.

Wanying Zhang, shipping analyst at Vortexa, said improving vessel availability had driven the correction. The number of loaded mainstream VLCCs and Suezmax tankers in East Asia had increased by approximately 15% since early September.

The decline has also reduced the delivered cost of African and Brazilian crude to China by around $5 to $10 a barrel compared with last month.

A Chinese independent refiner in Shandong province bought one million barrels of Angolan Plutonio crude for delivery in late December or early January at a premium of about $15 to ICE Brent, down from premiums exceeding $20 two weeks earlier.

Brazilian Tupi crude was last traded at a premium of $7 to $8 a barrel for January delivery, compared with nearly $20 last month.

Although freight costs have eased, Asian buyers continue to use smaller Aframax tankers for US West Texas Intermediate shipments, which typically carry between 500,000 and 700,000 barrels. Abu Dhabi’s Murban crude remained about $2 a barrel cheaper than WTI, according to one trader.