- China’s crude oil imports are set to slow in the second quarter after Brent prices hit a 13-month high, cooling demand and capping refiners’ margins.
- The refiners prepare to shut for planned maintenance, industry sources and analysts said.
- Expectations of a recovery in global fuel demand and tighter oil supplies from Saudi Arabia and the United States pushed front-month Brent futures to their highest.
- It is highest since January 2020 this week, up around 30% from January.
A recent news article published in the Reuters reveals that Chinese refiners are cool on crude purchases as oil futures rally. Shu Zhang brings out more on this news with his expertise for Reuters.
Key highlights that prevail in the market
- Demand to fall on Q2 refinery maintenance
- Domestic refining margins still weak
- 6-month Brent backwardation widest in 13 months
- Medium sour grades flip to discounts in spot market
Chinese independent refiners
Chinese independent refiners, who account for a fifth of the country’s import demand, have become reluctant to buy cargoes as they enter a low-demand season, while domestic margins have yet to catch up with strong gains in international prices, the sources said.
Easing purchases from China
Easing purchases from China, the world’s largest crude importer, led to a drop in spot prices for Middle East and Russian grades this week, while prices of crude from other regions such as Africa and South America have also weakened.
“Demand is very slow now and there are many available cargoes to choose from,” said a source at a Chinese refinery, adding that high oil prices have cooled buying interest.
Economics of storing oil
Brent’s six-month price spread LCOc1-LCOc7, used by traders to calculate the economics of storing oil, was at about $3.80 on Friday, the widest backwardation in 13 months.
The April-May Brent spread LCOc1-LCOc2 was at 99 cents a barrel, also a 13-month-high.
Backwardation
Backwardation, where prompt prices are higher than those in future months, indicates tight supplies and discourages traders from holding oil.
The destocking pressure is huge in the face of weak Chinese refinery appetite, traders told Reuters.
“The lack of substantial demand, plus strong backwardation, put a lot of pressure on traders,” said a source with an Asian refiner, noting an increasing number of unsold cargoes due to arrive in Asia in March and April.
Weak China demand
Weak China demand has depressed spot prices for popular grades sold into China such as Russia’s ESPO crude and Oman.
Spot premiums for April-loading ESPO ESPO-DUB fell to $1.50-$1.60 a barrel above Dubai quotes, from $1.80-$2.20 a week prior, while Oman slipped into discount earlier this week.
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Source: Reuters
