Singapore — China’s state-run Sinopec has made purchases of US crude oil after a lull of several months, in advance of a summit between the leaders of the two countries in the coming weeks, with VLCC deliveries expected as early as May, sources said.
The purchases could potentially signal market confidence that the upcoming trade talks will result in some tariff concessions. They are also in line with other commodities like LNG, where counterparties are preparing to sign new contracts, and soybeans where purchase commitments have already been made.
Sinopec’s 9.2 million mt/year Hainan and 5 million mt/year Dongxing refineries in southern China have purchased a cargo of US crude scheduled for loading on a VLCC by the end of March, and arrival in China in late May, a refinery source said.
The cargo will be split between Hainan and Dongxing, with each refinery taking around 130,000 mt of crude, the source, who declined to be named, said.
Sinopec’s refineries had been asked to submit purchase orders for US crude by the corporate headquarters in February, the sources said. Sinopec operates the bulk of China’s state-run refineries and purchase orders have to be routed via headquarters to its trading arm Unipec.
Sinopec’s 8 million mt/year Anqing and 8 million mt/year Wuhan refineries in central China have also submitted purchase orders for US crude, refinery sources confirmed.
These cargoes are scheduled to arrive in China over May-June due to the near 60-day voyage from the US Gulf Coast.
US-CHINA CRUDE FLOWS
US crude shipments to Chinese refiners tapered off when the trade war began in 2018, even though China had not yet imposed any retaliatory tariffs.
The decline in shipments in the second half of 2018 was due to a combination of uncertainty over trade talks, risks in long-haul shipping and a lack of any significant US-China trade arbitrage.
China did not take deliveries of US crude in October, December or January, according to data from China’s General Administration of Customs. However, China’s imports of US crude in 2018 posted a sharp increase of 60.4% year on year to 247,624 b/d.
Sinopec, the world’s biggest refiner by capacity, stopped using US crudes as feedstock in October. But China’s independent refiners, Yuhuang Petrochemical and Hongrun Petrochemical, imported 1 million barrels of Southern Green Canyon in November and 86,000 mt of Eagle Ford in February/March, respectively.
Shipping data indicate that US-origin crude may have trickled into China from alternative indirect sources such as storage farms and ship-to-ship transfers.
“It is sensitive,” a Unipec executive said, when was asked if the company had resumed importing US crude oil.
US Gulf Coast crude oil exports have been trending at historically high levels, and are expected to remain elevated into March and April, according to loading programs.
US crude exports hit a record 3.607 million b/d in the week to February 15, easing back to 3.359 million b/d in the following week, US EIA data showed. Those were the first two weeks that US crude exports crossed 3 million b/d mark since the week to November 30, when they touched 3.203 million b/d.
CHINA CRUDE IMPORTS SURGE
China’s overall crude oil imports in February rose 21.6% year on year to 10.27 million b/d, preliminary customs data showed Friday. It was the fourth time China’s monthly crude imports breached the 10 million b/d mark, and were 2% higher than January’s levels.
Chinese customs release data in metric tons, which S&P Global Platts converts to barrels using a 7.33 conversion factor.
“Much of the increase probably went into storage,” S&P Global Platts Analytics senior analyst Grace Lee said, adding that China’s crude imports could slow in March and April due to high crude stocks and refinery maintenance.
The uptick in China’s crude imports in February was also likely driven by state-owned refineries rather than independent ones. Platts data showed crude oil imports by the independents in February fell 6.3% month on month to 2.55 million b/d, although they were up 24.7% year on year.
Meanwhile, market participants are anticipating a proposed summit between US President Donald Trump and Chinese President Xi Jinping, likely in late March or early April, to yield an agreement that relaxes trade tariffs, after the outlines of a deal were laid out in recent weeks.
“While market focus is currently on positive developments in the China-US trade talks, significant issues remain unresolved,” Goldman Sachs said in a note to clients last week.
“In the event the China-US trade talks end with an inked deal, our economists view it as unlikely IP, technology and security issues between the US and China will be fully resolved, leaving a cloud of uncertainty over economic activity tied to these issues,” the bank said.
— Analysis by Cindy Liang; Oceana Zhou and Eric Yep, [email protected]
— Edited by Jonathan Fox, [email protected]
Source: S&P Global Platts