N. Asia Snaps up Russian Crude Oil

Maritime Activity Reports, Inc.

October 8, 2015

Mideast crude freight to Japan highest since 2010.

North Asian refiners have snapped up Russian crude oil loading in the last two months of this year to meet peak winter demand as Middle East and West African grades have become more costly after freight rates hit multi-year highs, traders said on Thursday.

The freight rate for chartering Very Large Crude Carriers (VLCC) plying the key Middle East to Japan route <DFRT-ME-JAP> and the West Africa to China route are at the highest in more than five years, prompting refiners to look at crude within Asia and from nearby sources such as Russia.

"The spike in freight rates pushed up the regional crude market," said a Singapore-based trader. "We've seen less West African crude come to the East."

Strong demand for Russian crude has led spot premiums for grades such as Sokol and ESPO to jump by $2-$3 in November-December from October.

These grades typically produce more middle distillates, the key fuel used for heating during winter in the northern hemisphere.

Big buyers of November-loading ESPO included Unipec, the trading arm of Asia's largest refiner Sinopec, and ChemChina, as they have bought four cargoes each, while Japanese trading company Marubeni bought three, traders said.

South Korean refiner Hyundai Oilbank bought at least two November-loading Sokol cargoes, they said.

Demand from refiners in the United States who purchased two ESPO cargoes to take advantage of a narrowing spread between U.S. crude and Dubai crude also helped boost spot differentials, traders said.

Supertanker freight rates from the Middle East and West Africa to Asia surged to a 5-year high due to a flurry of fixture activity ahead of China's Golden Week holiday which started on Oct. 1 and tight tonnage supply, Singapore-based ship brokers said. The tight supply of supertankers was exacerbated by bad weather in China, they added.

Rates have eased since Monday because of slower chartering activity over the holiday. Middle East charterers have yet to release their November fixture programme which has also dampened demand.

Reporting by Florence Tan

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