Japan's Taiyo Oil to lift Yanbu crude on delivered basis, switching from FOB

Japan's Taiyo Oil plans to switch to delivered cargoes of Saudi Arabian crude from Yanbu to reduce costs amid relatively high freight rates in the Red Sea, market participants said May 27.

So far, Taiyo Oil has been purchasing crude from Yanbu on a free-on-board (FOB) basis and chartering VLCCs on its own to load and transport the cargoes to Japan or Malaysia, a source with direct knowledge of the matter said.

The company will now take direct deliveries on a cost, insurance and freight (CIF) basis, as this will be cheaper than chartering ships in the Red Sea, the source added.

Shipping companies such as Dynacom charge a hefty premium to send their tankers through the Red Sea, a VLCC broker said. This is due to the risks involved and the current volatile geopolitical situation, with the ongoing war in Gaza heightening tensions in Iran.

The Platts-assessed VLCC freight rates for the Persian Gulf-Red Sea route were close to w70 on May 26, up from around w50 at the beginning of the year. Platts is part of S&P Global Energy.

Taiyo Oil lifts at least one VLCC of Arab Super Light crude from the Yanbu terminal every month, delivering it to its storage facility in Pengerang, Malaysia, to its Kikuma refinery or partially to both locations.

Each VLCC typically loads around 2 million barrels of crude. The Kikuma refinery has a capacity of about 138,000 b/d.

Since deliveries will now be on a CIF basis, Saudi Aramco can handle them using the Saudi Arabian shipping company Bahri, one of the world's largest by fleet size.

Some of Taiyo Oil's requirements are sourced from the Pengerang storage via Aframaxes, several sources said. The company has a contract of affreightment with Japanese shipping major KLine to charter these Aframaxes or procure them from the spot market through tenders.

Aframaxes heading to Japan typically load cargoes of about 80,000 mt. Around one or two Aframaxes move every month from Pengerang to Kikuma, the sources added.

Taiyo Oil's Kikuma refinery is currently the only Japanese refinery sourcing crude from Yanbu. Before the onset of the war in Gaza in October 2023, the company transported Saudi crude through the Red Sea using VLCCs time-chartered from Japanese companies like NYK.

Due to the war, moving tonnage through the Red Sea is a "strict no-no" for Japanese companies, the same source with direct knowledge of the matter said.

Shipping brokers in Singapore, Tokyo and Seoul said that due to geopolitical conflicts, only a handful of shipping companies from Greece, the Mediterranean and the Persian Gulf continue to move through the Red Sea.