Freight Rates Slip, China's Refiners Pounce on African and Brazilian Crude

China's refiners have gone shopping, and West Africa and Brazil got the call. After freight rates retreated over the past two weeks, Chinese buyers locked in cargoes of Equatorial Guinea's Ceiba, Angola's Saturno and Brazil's Mero, trading sources told Bloomberg. The December-delivery grades carried premiums of as much as $20 a barrel above ICE Brent — a price tag that only makes sense once the ships stop costing a fortune.

And they were costing a fortune. In early October, shipping crude from the U.S. Gulf Coast to China hit as high as $80 million a cargo — ten times the average tanker rates that had held for years before the Iran war. Rates have cooled since, but a supertanker hauling oil from the U.S. to Asia still ran about $60 million last week, according to the report. That's rich enough that Asian refiners are barely ordering U.S. crude for November delivery.

The route-by-route math tells the story. In the first week of October, moving crude from the U.S. Gulf Coast to South Korea topped $42 a barrel, Brazil-to-China cleared $39, and West Africa-to-China sat above $32, per Vortexa data cited by Bloomberg. Each of those routes has since shed roughly $10 a barrel — a haircut that was all it took to send Chinese refiners back into the Atlantic Basin market.

Russia isn't the easy alternative it once was. Competition with India for Russian supply has pushed up prices for the ESPO grade out of Russia's Far East, squeezing the discount that used to make it a bargain.

Then there's the hole where Iranian crude used to be. A U.S. blockade in the Gulf of Oman has cut China's independent refiners — the teapots — off from their cheap Iranian feedstock, leaving them hunting for whatever barrels are most economical.

Put it together and China's crude shopping list has been redrawn in a matter of weeks: Atlantic Basin grades are back in fashion, Russian ESPO costs more, Iranian supply is gone, and U.S. barrels are still too expensive to ship. For now, the refiners are following the freight rates — and the freight rates are finally pointing somewhere new.