Asian Refiners Snap Up African, Brazilian Crude as Freight Rates Slump

Asian buyers are taking Atlantic Basin crude at lower prices after tanker freight rates on cargoes from Africa and Brazil fell from all-time highs, traders, shipbrokers and analysts said. Unipec, the trading arm of Sinopec, the world's top refiner, and South Korea's SK Energy have chartered vessels at much lower rates to load West African grades in December.

Unipec and SK Energy move

A major buyer of West African and Brazilian oil, Unipec 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, two people who deal in West African grades said. The Chinese trader provisionally chartered two Suezmax-sized tankers to load West African crude for Asia at worldscale rates of 475 and 410 in late November to early December. It also provisionally chartered a very large crude carrier on the same route for loading in early December at W500, according to ship brokerages.

SK Energy, South Korea's largest refiner, provisionally chartered a Suezmax to load at Gabon for Ulsan in December at W380. Sinopec did not immediately respond to a request for comment. SK Energy declined to comment.

Freight correction

Energy Aspects said in a November 9 note: "Softer long-haul VLCC freight rates are making west of Suez grades more attractive." Elevated premiums for rival Russian ESPO crude should also support Chinese demand for heavier Angolan grades, the consultancy added.

Costs of delivered African and Brazilian crude to China have fallen $5 to $10 a barrel from last month, a trader who closely tracks these deals said. Freight rates for VLCCs, excluding loadings inside the Strait of Hormuz, as well as Suezmax and Aframax tankers, have fallen about 50% from their peaks last month, Baltic Exchange data showed.

Vortexa shipping analyst Wanying Zhang said: "The recent freight correction has been driven by improving vessel availability following October's exceptional market tightness." Zhang added: "The number of laden mainstream VLCCs and Suezmaxes in East Asia has increased by approximately 15% since early September, suggesting a growing pool of vessels that could become available as they complete discharge operations."

Chinese buying and crude premiums

A Chinese independent refiner based in eastern Shandong province bought 1 million barrels of Angolan Plutonio crude for delivery in late December or early January at about $15 above ICE Brent, two traders said. A fortnight ago, Angolan grades traded at premiums of more than $20, they added.

Brazilian Tupi crude last traded at a premium of $7 to $8 a barrel to December dated Brent for January arrival, another trader said, versus deals at premiums near $20 last month. Offers for Brazilian and West African crude jumped to more than $20 and $40 a barrel, respectively, last month, traders said.

For US West Texas Intermediate crude, Asian buyers continue to ship cargoes using Aframax-sized tankers that can carry 500,000 to 700,000 barrels of oil as freight rates for VLCCs remain elevated despite easing from peak levels. Even as WTI prices have fallen, rival Abu Dhabi Murban crude was still cheaper by about $2 a barrel, one trader said.

Why rates fell

Last month, Asia's oil costs surged after freight rates across all types of tankers hit record levels as Middle Eastern producers cranked up exports. That required more vessels to conduct ship-to-ship transfers outside the Strait of Hormuz to avoid attacks linked to the US war on Iran. A switch by Chinese independent refiners to non-sanctioned oil after a US blockade cut off Iranian exports, and their rush to use up crude import quotas by year-end, also increased tanker demand.

Asian refiners held back purchases in recent weeks due to high costs, depressing spot prices. More vessels are available for hire after delivering oil, leading to a sharp correction in freight rates, the people said.