Comparing the two months of October and November to December and January, the volume of high sulphur fuel oil imported into China more than tripled as independent refineries snatched up cheaper negotiated barrels from Russia, as reported by S&P Global.
Sufficient price incentive
The trend is expected to continue, likely with more vigor in February, especially after the recently imposed price caps on Russian-origin petroleum products, including fuel oil, market sources said Feb. 10.
China has imported about 2.3 million mt HSFO over December-January, about 235% higher compared to 687,000 mt during November-December, according to Kpler shipping data.
“Chinese private refiners could be using bargained Russian fuel oil as an alternative refinery feedstock.”
“Chinese private refiners could show a continued appetite as long as there is sufficient price incentive.
This can also allow them bypass crude import quota limitations,” Zhang added.
“China has been picking up quite a bit of Russian straight run fuel oil as feeds for its teapot refineries [ independent refineries] in recent weeks,” a Singapore-based fuel oil trader said, adding, however, that the market was keeping a close eye on the impact of the EU’s price cap on Russian fuel oil.
China’s independent refineries, sometimes known as teapots, are mostly located in the country’s eastern Shandong province.
And the buying timing would mostly depend on prices and left quotas.
“They received extra quotas in October 2022 and [so] limited quota is not the key reason this time,” said Sijia Sun, China oil markets analyst at S&P Global.
Steady demand from China, on the back of a stable downstream bunker market for the high sulfur grade in recent weeks, have bolstered the 380 CST HSFO cargo prices to gain 14% since end-November, S&P Global data showed, while traders expect the market to remain relatively supported in the near term.
Trade flow in focus
Although Asia is preparing to see more Russian oil products flowing into the region following the EU ban that came into effect Feb. 5, some trade sources said the persistent arrivals might also ease if the recently imposed ban forces Russian refineries to cut run rates, trade sources said.
“Russian HSFO will head to places where it can find homes.
Last summer Russian HSFO headed to the Middle East and South Asia.
I don’t think that trade flow will change.
Essentially, Russian HSFO redirection is an East of Suez story,” said Aabha Gandhi, senior oil products analyst at Kpler.
“China doesn’t need the high sulfur residue barrels per se, as it can anyway run its primary units at elevated rates, due to the ample availability of discounted Russian crude.”
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Source: S&P Global