Chinese Demand for Angolan Oil Revives Ahead of IMO 2020

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Angolan oil sales are bouncing back from a dull summer as Asian refining margins have recovered and demand is rising ahead of IMO 2020 a major change in marine fuel standards, reports Reuters.

Strong september

Crude from Africa’s second-largest exporter after Nigeria flowed to its top customer China in the lowest volumes in nearly five years in July, Refinitiv Eikon data shows.

One major seller of Angolan crude said:

  • August is shaping up to be even weaker than June and July, but September has a strong tone.
  • The levels in demand for September is believed to be related in part to the interest in specific grades suitable for refining into IMO-compliant bunker fuels.
  • The Cabinda, Kissanje and Hungo grades especially suited to the new fuels were selling fast.

The sulphur regulation

From Jan. 1, International Maritime Organization (IMO) rules for marine fuel, also called bunker fuel, will bar ships from using fuels containing more than 0.5% sulphur, compared with 3.5% currently, to reduce air pollution.

Angolan grades to improve

As refiners increase their efforts to look for alternatives to present bunker fuel, Angolan grades will improve said Ehsan Ul-Haq, lead analyst for oil research and forecasts at Refinitiv.

Angola’s poor performance this summer came as backwardation in the oil market has made prompter deliveries more expensive and discouraged shipping crude long distance, while China stocked up on similar Iranian crudes ahead of U.S. sanctions and refining margins stayed low.

Traders said the pace of exports to China for July was roughly in line with June but deteriorated further next month. 

Middle distillates

Angola’s medium-to-heavy grades, which tend to yield larger quantities of middle distillates such as gasoil and jet fuel, have drawn higher demand in 2019 as U.S. sanctions removed comparable Venezuelan and Iranian varieties.

Differentials rose to all-time highs before beginning a months-long slide in June. Traders say the situation is now steadying as refining margins have improved.

Angolan crude the best option?

Asian margins have lifted in recent weeks, pushing up demand from Chinese independent refiners for crudes from Russia, Oman, Brazil as well as Angola.

Margins for gasoil, the base for diesel and jet fuel, hit an eight-month high of $17.09 a barrel on Monday. 

Ul-Haq of Refinitiv added that Angolan oil’s fate will also depend on distillate prices in the next few months. 

“If distillate prices continue to move higher, using Angolan crudes could be a good option.”

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Source: Reuters

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