NEW YORK: China, the global oil market’s lifeline this year, has stepped up purchases from exporters like Russia, the United States and Angola in recent weeks, while buyers elsewhere pare orders as coronavirus infections surge and fresh lockdowns are put in place.
With China’s imports expected to reach 12 million barrels per day (bpd) next year, sellers are lining up shipments to retain market share as worldwide oil consumption is expected to fall by nearly 9 per cent in 2020. (Graphic: Global oil demand by region during Q2 and Q3 2020, ) This week, Royal Dutch Shell Plc, Russian Lukoil’s trading arm Litasco and Unipec, the trading arm of China’s state-owned Sinopec, have provisionally booked, or are looking to book supertankers to ship US crude from the Gulf Coast to Asia in December, according to shipbrokers and Refinitiv Eikon data.
COVID-19 infections are rising worldwide, particularly in heavy fuel users like the United States and Europe.
For the last few months, that pushed the prices of key crude grades lower, allowing Chinese buyers to take advantage. The country is also ramping up commercial oil stockpiling, buying oil at low prices to increase reserves.
The International Energy Agency said last week that China was on track to be the only major country to boost its demand for oil year-on-year. It estimates global demand at 91.3 million bpd in 2020, down from 100.1 million bpd in 2019.
“Lockdowns will probably be in place in Europe for much of this winter. China has raised its quotas and (storage) capacity. It looks like the demand will be centred there in the near future,” a trader at a European refiner said.
The premium for Russian January-loading ESPO Blend crude, one of the most popular grades for Chinese independent oil refiners, is at five-month highs.
US crude grades are rebounding as well, with WTI in East Houston WTC-MEH climbing to its highest in about two months this week. US grades have been pressured due to a 12 per cent drop in domestic fuel demand and as new COVID-19 infections hit daily records.
These come on the back of firmer Middle East crude prices, which makes up the baseload of Asia’s demand. This week, Qatar sold January-loading al-Shaheen crude at the highest premiums in four months.
“Chinese demand is more visible now,” one trader in the Russian Far East crude oil market said. “Trading firms are very active as they expect more requests from China’s independent oil refiners that will buy oil under new import quotas.” A Chinese buyer said traders were offering US crude, North Sea Forties and West African grades as they expected arbitrage economics to improve after sharp gains in Middle East prices. — Reuters
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