China’s refiners are buying crude oil from West Africa and Brazil after freight rates eased in the past two weeks, while competition for Russian supply is stronger and Iranian barrels have disappeared.
Following a decline in shipping rates from all-time highs, some Chinese refiners have bought West African and Brazilian crude grades at premiums of up to $20 per barrel above ICE Brent for delivery in December, trading sources told Bloomberg on Wednesday.
In early October, the freight rates of crude cargoes from the Atlantic Basin to Asia soared to record highs.
The cost of shipping crude oil from the U.S. Gulf Coast to China soared to as high as $80 million earlier this month. That’s ten times the average tanker rates that had held for years before the Iran war.
Freight rates have eased from the record highs seen in early October, but they were still about $60 million for a supertanker to carry oil from the U.S. to Asia last week. The cost is so high that Asian refiners aren’t ordering much crude from the U.S. for November delivery.
In the first week of October, the cost to ship crude from the U.S. Gulf Coast to South Korea soared to above $42 per barrel, the Brazil-to-China freight rate topped $39 per barrel, and the West Africa to China route had shipping costs of over $32 a barrel, per data by Vortexa cited by Bloomberg.
The rates have now eased by about $10 per barrel on each of these routes, prompting Chinese refiners to purchase Equatorial Guinea’s Ceiba crude, Angola’s Saturno, and Brazil’s Mero, according to Bloomberg’s sources.
At the same time, competition for Russian supply with India has pushed higher the prices of the ESPO grade from Russia’s Far East.
Moreover, China’s independent refiners, the so-called teapots, are now looking for the most economical crude supply available, after the U.S. blockade in the Gulf of Oman cut off their cheap Iranian crude feedstock from the market.
By Charles Kennedy for Oilprice.com
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