Tanker Freight Slump Puts Atlantic Crude Back on Asia's Menu

Delivered costs of African and Brazilian crude to China have dropped $5 to $10 a barrel in a month, and Asian refiners are buying again. Unipec, the trading arm of Sinopec, picked up Congolese Djeno cargoes last week at discounts of roughly $22 a barrel to dated Brent on an FOB basis. That's not a subtle signal. Atlantic Basin barrels are back in play because the ships that carry them have become cheap.

Unipec also provisionally chartered two Suezmax tankers to load West African crude for Asia at worldscale rates of 475 and 410 for late November to early December lifting, ship brokerages report. It added a VLCC on the same route for early December loading at W500. South Korea's largest refiner, SK Energy, followed suit, provisionally fixing a Suezmax to load at Gabon for Ulsan in December at W380. Sinopec didn't respond to a request for comment; SK Energy declined to comment.

Why did freight collapse?

The answer sits in October's extraordinary tightness. Middle Eastern producers ramped up exports, forcing more vessels into ship-to-ship transfers outside the Strait of Hormuz to avoid attacks tied to the US war on Iran. Chinese independent refiners, cut off from Iranian barrels by a US blockade, scrambled for non-sanctioned crude and burned through import quotas before year-end. Every tanker in the basin got busy, and every rate hit record levels.

Then Asian refiners simply stopped buying. High costs kept them on the sidelines, spot prices sagged, and vessels returning from deliveries rebuilt the available fleet. The result: VLCC rates excluding Hormuz loadings, plus Suezmax and Aframax rates, have fallen about 50% from their October peaks, Baltic Exchange data showed.

"The recent freight correction has been driven by improving vessel availability following October's exceptional market tightness," said Wanying Zhang, shipping analyst at Vortexa. "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."

What does this change for buyers?

Cheaper freight translates directly into cheaper oil. Angolan and Brazilian grades heading to China, the world's largest importer, have become affordable again after a stretch when offers for Brazilian and West African crude spiked above $20 and $40 a barrel respectively last month.

The numbers tell the story plainly:

• A Chinese independent refiner in eastern Shandong bought 1 million barrels of Angolan Plutonio for late December or early January delivery at about $15 above ICE Brent. Two weeks ago, Angolan grades traded at premiums above $20.
• Brazilian Tupi last traded at a $7-$8 premium to December dated Brent for January arrival, versus premiums near $20 last month.
• Delivered African and Brazilian crude to China is down $5-$10 a barrel month on month, per a trader who tracks these deals closely.

"Softer long-haul VLCC freight rates are making west of Suez grades more attractive," Energy Aspects analysts wrote in a November 9 note. They added that elevated premiums for rival Russian ESPO crude should also support Chinese demand for heavier Angolan grades.

One exception remains

US West Texas Intermediate tells a different tale. Asian buyers still move WTI on Aframax tankers carrying 500,000 to 700,000 barrels, because VLCC rates on that route remain elevated despite easing from their peaks. And even with WTI prices off their highs, Abu Dhabi's Murban crude stays about $2 a barrel cheaper, one trader said. The American barrel hasn't joined the discount party.

The wider takeaway is straightforward: a 50% freight correction in a month has rerouted Asian demand toward the Atlantic. If vessel availability keeps building, as Vortexa's East Asia fleet count suggests, expect West African and Brazilian differentials to stay under pressure through the December loading window.