Asian refiners turn to African crude as shipping costs fall

By Diden Abigail Owuntarose

Asian oil refiners are increasing purchases of African crude oil as a sharp decline in tanker shipping costs makes supplies from West Africa and other Atlantic Basin producers more competitive in international markets.

The renewed interest follows a reduction of approximately 50 per cent in freight rates for major oil tankers from their record highs in October, easing the cost of transporting crude from Africa and Brazil to Asian markets.

The cost of delivering African and Brazilian crude to China has declined by between $5 and $10 per barrel compared with the previous month.

The development has encouraged major Asian oil buyers, including Unipec, the trading arm of China’s state-owned Sinopec, and South Korea’s SK Energy, to increase purchases and arrange additional shipments from West Africa.

Unipec reportedly purchased two cargoes of Congo’s Djeno crude at discounts of approximately $22 per barrel to dated Brent on a free-on-board basis.

The Chinese trader also provisionally chartered two Suezmax tankers to transport West African crude to Asia for loading between late November and early December.

South Korea’s SK Energy equally provisionally chartered a Suezmax vessel to transport Gabonese crude to Ulsan, South Korea, in December.

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The shift comes after unusually high shipping costs in October discouraged Asian refiners from purchasing crude from distant suppliers, particularly Africa and South America.

Freight rates increased sharply as Middle Eastern oil producers expanded exports and required additional vessels to transport crude through routes affected by security concerns around the Strait of Hormuz.

However, increased vessel availability following earlier deliveries has helped ease pressure on the shipping market.

Wanying Zhang, shipping analyst at Vortexa, attributed the correction in freight rates to improved vessel availability following October’s exceptional market tightness.

The number of laden mainstream Very Large Crude Carriers (VLCCs) and Suezmax tankers in East Asia has increased by approximately 15 per cent since early September, indicating that more vessels could become available for additional shipments.

The decline in transportation costs has also improved the competitiveness of Angolan and Brazilian crude.

Angolan crude grades, which had attracted premiums exceeding $20 per barrel above benchmark prices, were recently traded at premiums of about $15 per barrel.

Brazilian Tupi crude also recorded premiums of approximately $7 to $8 per barrel, compared with levels close to $20 per barrel in the previous month.

For Nigeria, the development could create fresh opportunities for crude exports as Asian refiners reconsider supplies from West African producers.

A separate analysis by commodity intelligence firm Kpler on November 12 indicated that Nigerian Agbami crude had become more competitive in the Asian market, with its assessed landed value in Ningbo, China, falling by $11.95 per barrel week-on-week.

Kpler also noted that Agbami cargoes had become approximately $4 per barrel more competitive than Abu Dhabi’s Murban crude under its latest market assessment.

The development is significant for Nigeria, whose crude exports remain an important source of foreign exchange and government revenue.

Increased interest from Asian refiners could provide additional market opportunities for Nigerian producers, particularly if lower freight costs persist and the country’s crude grades remain competitive against supplies from the Middle East and other producing regions.

However, the potential benefits will depend on the availability of exportable Nigerian crude, production levels, pricing differentials and sustained demand from Asian buyers.

Industry analysts also expect competition among crude suppliers to remain strong as Middle Eastern producers adjust prices to defend their market share in Asia.

With shipping costs becoming a major factor in determining the competitiveness of international crude supplies, the latest development highlights the growing importance of transportation economics in shaping global oil trade.

For Nigeria and other African producers, the opportunity will be to convert improved shipping economics into stronger export demand, better market access and increased earnings