Asian Buyers Seek Oil From Closer to Home as Shipping Costs Soar

(Bloomberg) -- Soaring oil tanker costs are boosting Asian demand for crude grades produced closer to home.

At least one of Russia’s ESPO Blend crude cargoes was sold at as much as $9 a barrel over the Dubai benchmark price, said traders who asked not to be identified. That’s the highest in figures going back to late-2014, data compiled by Bloomberg show. The oil will be shipped from Kozmino, a port in Russia’s Far East, taking less than a week to reach buyers in Northeast Asia.

Grades such as ESPO are being bid up after U.S. sanctions on shipowners including units of China’s COSCO Shipping Energy Transportation Co. triggered a surge in chartering costs. While rates have eased this week, the cost of transporting oil from the Americas, Europe, Africa and the Middle East remains elevated. Other short-haul cargoes include Russia’s Sokol and Sakhalin Blend, Malaysia’s Kimanis and various Australian grades.

Also read: ExxonMobil Sells Sokol Crude for Dec. at ~$9 Premium

The cost to ship a cargo from Kozmino to China was between $1.2 million to $1.4 million this week, the equivalent of about $1.80 a barrel, shipping fixtures showed. That compares with $6.40 a barrel to transport oil from West Africa to China, and $4.30 to move crude from the Middle East to Northeast Asia.

The high demand for ESPO could impact China’s oil market, as seaborne sales from Kozmino are referenced in the price that China National Petroleum Corp. pays for pipeline imports from Russia, a 600,000-barrel-a-day stream.

Surgutneftegas PJSC sold the two ESPO cargoes this week at premiums of between $8.80 and $9.10 a barrel, the traders said. That premium was higher than a $6.70-$6.90 excess at the reported sale of the grade in late September.

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