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Chinese buyers snap up U.S. oil purchases at widest discounts ever

April 06/2020

MOSCOW (MRC) -- China has increased U.S. crude purchases with some buyers snapping up cargoes at the widest discounts ever as sellers seek to offload excess supplies in Asia, reported Reuters with reference to six trade sources.

China started processing in March applications from its companies to waive import tariffs on U.S. energy goods as part of the Sino-U.S. Phase 1 trade deal and they have since bought liquefied natural gas (LNG) and liquefied petroleum gas (LPG) from the United States.

The worlds largest crude importer is boosting U.S. energy imports at a time when the world is swamped with excess supply after the Organization of the Petroleum Exporting Countries (OPEC) and Russia failed to extend production cuts and as measures to curb the spread of the coronavirus undermined demand.

Cheap U.S. energy supplies will help China lower its import costs, but the deep discounts will add further pressure on U.S. producers to shut in production after U.S. crude futures CLc1 slumped to their lowest since 2002.

U.S. Mars Sour crude has been sold to Chinese buyers at discounts between USD7 and USD9 a barrel to September ICE Brent futures for July arrival while the discounts for West Texas Intermediate crude (WTI) in Midland were between USD6 and USD7 a barrel, the sources told Reuters.

BP (BP.L) and Equinor (EQNR.OL) may have sold some of these cargoes, they said, while the buyers were not immediately known. BP declined to comment while Equinor could not be immediately reached for comment outside office hours.

"Only the Chinese are buying and the rest of the world are selling," a Singapore-based trader said, leading to some very aggressive offers for U.S. crude into that market even though the oils benchmark is already at the lowest in 18 years.

In early March, independent refinery Panjin Haoye Chemical Co bought Mars crude from PetroChina in one of the first signs of Chinese refiners resuming U.S. crude purchases. Mars and WTI were then offered at spot premiums to benchmarks.

U.S. crude is mired in deep discount as producers, forced to clear pipelines stuck with unsold oil, are now flooding the U.S. gulf coast with cheap crude.

Strong demand to ship out excess U.S. crude to China has also caused freight rates to surge, with costs jumping to $8-$10 per barrel, two of the sources said.

At least 9 Very Large Crude Carriers (VLCCs) have been booked by traders and refiners to load crude from the U.S. over the next two months for Asia, four of which could be bound for China, according to a shipbrokers reports.

(Graphic: Supertanker freight rates from U.S. to Singapore link: here)

Other Asian importers of U.S. crude such as India and Thailand are reducing refinery utilization rates to cope with a sudden plunge in domestic demand as their governments impose more stringent coronavirus lockdown measures.
Chinese refiners are gradually ramping up output after sharp cuts in February although they have yet to return to levels before the outbreak as demand recovery is still slow, the sources said.

Demand is bad globally. Only China seems relatively OK, said a source at a Shandong-based refinery.

We are steadily increasing operation rates.

As MRC wrote before, in mid-February 2020. Asia's largest oil and gas firm PetroChina resumed construction of its oil refinery and petrochemical project in southern Chinese province of Guangdong, as the number of new coronavirus cases fell for a second straight day.

We also remiand that Sichuan Petrochemical (part of PetroChina) undertook an emergency shutdown at its naphtha cracker in Sichuan province of China on July 11, 2018 owing to a gas leak at its natural gas supply pipeline. Further details on duration of the outage could not be ascertained. Located at Sichuan province of China, the cracker has an ethylene capacity of 800,000 mt/year.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 383,760 tonnes in the first two month of 2020, up by 14% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased due to the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 192,760 tonnes in January-February 2020, down by 6% year on year. Homopolymer PP accounted for the main decrease in imports.
Author:Margaret Volkova
Tags:crude and gaz condensate, BP Plc, PetroChina, KITAY, Russia, USA.
Category:General News
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