China’s oil demand picks up as impact of COVID eases, more quotas in sight

An oil tanker is seen at the port of Qingdao, in Shandong province, China on April 21, 2019. REUTERS / Jason Lee

SINGAPORE / LONDON / HOUSTON, Aug.31 (Reuters) – China’s spot crude demand appears to be picking up after nearly five months of slow purchases caused by a shortage of import quotas, high inventory levies and lockdowns linked to COVID-19 that have reduced Chinese fuel consumption.

Lower purchases since April by the world’s largest crude importer and a decline in China’s refining production to 14-month lows in July have pushed down prices for West African crude oil and from Brazil to multi-month lows. Read more

But traders and analysts say Chinese importers are now stepping up the pace of buying and paying higher premiums to secure supplies from November as lockdown restrictions relax.

A sustained rebound in Chinese demand could tighten supply and support global oil prices.

RELAXATION OF INTERLOCKS

Oil demand from the world’s second-largest consumer appears to be on the way to recovery as Beijing eases lockdown measures after largely containing several outbreaks of the COVID-19 Delta variant since it emerged in the country in July, traders said. . Read more

Traders hope Beijing will soon close an investigation into the resale of import quotas and tax evasion by importers, which has created uncertainty in the market. A fourth batch of quotas is also expected to be issued in September or October, which could boost demand from independent refiners, also known as teapots, which account for a fifth of Chinese imports. Read more

China’s crude oil imports set to rebound after recent lull

“The Chinese majors’ crude stocks are very low, and once the government completes inspections and finalizes the sanctions, the teapots will import crude again,” Energy Aspects said in an Aug. 23 note.

Imports into eastern China’s Shandong province, home to most independent refiners, fell below 3 million barrels in July and August, compared to around 3.55 million barrels on average in the first half of the year. 2021, said Emma Li of analytics company Vortexa.

COMMERCIAL BONDS

Traders in Asia and Europe told Reuters Chinese buyers recently bought Brazilian and Angolan qualities at higher premiums than the previous month, while inquiries from independent refiners increased.

This has helped Chinese markets recover after being “deadly silent” for several months, said a trader with a Western supplier.

Energy Aspects charts showing global crude balances and major Chinese crude futures hedging days

Angolan national oil company Sonangol recently recovered a spot cargo of Dalia crude loaded in October, while Cabinda and CLOV cargoes were also moved, likely to Chinese buyers and at higher prices than last month, said. traders.

This contrasts sharply with July, when sellers regularly offered shipments of West African crude through the Platts window that normally flowed directly to Chinese buyers, the traders added.

Last month, Unipec, the trading arm of Asia’s largest refiner Sinopec (600028.SS), repeatedly offered crudes from Angola and Congo – including Djeno, Dalia, CLOV, Mondo, Sangos and Mostarda – which had been allocated to it on a term basis. In all cases, shipments sold slowly and at lows of several months.

“Over the past week we have seen a lot of teapot related activities which is healthier,” said a Singapore-based trader.

“Suppliers are more optimistic now than a few weeks ago.”

In Asia, Petrobras (PETR4.SA) sold 2 million barrels of Brazilian Tupi crude to Unipec at $ 1 a barrel above January ICE Brent for November delivery, several traders following the deals in China said. Tupi for October delivery to China was trading at 20 cents a barrel above December ICE Brent futures.

Chinese crude oil imports from Brazil and West Africa have fallen recently but are expected to rebound

Angolan Dalia crude was also sold at $ 1 more a barrel compared to January’s ICE Brent for delivery in November, they added.

Brazil’s oil exports to China have fallen by almost half in the past year, with shipments redirected to India, Europe and the United States, official data shows.

Crude Oil Exports to China from Africa and Brazil

Petrobras shipped just 45% of its oil exports to China in the second quarter, up from 87% in the same quarter of 2020, according to the producer’s financial statements.

Reporting by Florence Tan in Singapore, Noah Browning in London and Sabrina Valle in Houston; edited by Gavin Maguire and Richard Pullin

Our standards: Thomson Reuters Trust Principles.


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Felix J. Dixon

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