Asian Refiners Buy African Oil as Shipping Costs Fall 50%

Asian oil refiners are increasing purchases of African and Brazilian crude as tanker shipping costs fall from October's record levels, making imports from the Atlantic Basin more affordable. Freight rates for major oil tankers have declined by about 50% from last month's peaks, reducing the cost of delivering crude to Asia by $5 to $10 per barrel. The drop has prompted Chinese and South Korean refiners to secure cargoes from African producers, including Congo, Angola and Gabon, according to traders and shipping brokers.

Unipec, the trading arm of China's Sinopec, purchased 2 cargoes of Congolese Djeno crude at discounts of approximately $22 per barrel to dated Brent last week. The company has also provisionally chartered 2 Suezmax tankers and 1 very large crude carrier to transport West African oil to Asia between late November and early December. South Korea's SK Energy has booked a Suezmax tanker to load crude in Gabon for delivery to Ulsan in December. Both companies secured shipping arrangements at rates below those recorded in October.

Freight costs surged in October as Middle Eastern producers increased exports and used more vessels for ship-to-ship transfers outside the Strait of Hormuz to avoid attacks linked to the US-Iran conflict. Chinese refiners also increased demand for tankers after restrictions on Iranian crude imports pushed them toward other suppliers. As vessels completed deliveries and became available for new shipments, freight rates declined. The number of loaded VLCC and Suezmax tankers in East Asia has increased by approximately 15% since early September, according to shipping analytics company Vortexa.

Lower shipping costs have also made Angolan and Brazilian crude more competitive. A Chinese refiner purchased 1 million barrels of Angola's Plutonio crude for delivery in late December or early January at a premium of approximately $15 per barrel to Brent, compared with more than $20 about 2 weeks earlier. Brazilian Tupi crude traded at premiums of $7 to $8 per barrel for January delivery, down from nearly $20 in October. The price changes reflect lower transport costs and reduced demand during the previous month.

Asian buyers continue to purchase US West Texas Intermediate crude using smaller Aframax tankers, which carry between 500,000 and 700,000 barrels. However, Abu Dhabi's Murban crude remains approximately $2 per barrel cheaper than WTI, while freight costs for larger vessels remain above normal levels despite their decline. Further purchases of African oil will depend on shipping rates, crude price differences and demand from Asian refineries.