China’s Hengli, Zhejiang offer relief for Saudi Arabia’s faltering crude sales to Asia

      Published on Wednesday, 10 July , 2019      277 Views     
China’s Hengli, Zhejiang offer relief for Saudi Arabia’s faltering crude sales to Asia

  • Business

Saudi Aramco maintained a solid market share in China during the first half of 2019 despite OPEC’s continued commitment to keep crude oil production limited, with demand from China’s independent refining sector playing a crucial role in keeping Saudi crude flows to the giant Asian consumer ample this year.



Saudi Arabia’s crude oil exports to major Northeast Asian customers have suffered so far this year amid stiff competition from light sweet US crude cargoes flooding the Asian market and OPEC’s ongoing production cut strategy.

South Korea for one imported 126.648 million barrels of crude oil from Saudi Arabia over January-May, lower than 128.229 million barrels received in the same period a year ago, latest data from state-run Korea National Oil Corp. showed.

Japan’s crude imports from the major Middle Eastern producer also fell 5.5% year on year to 1.169 million b/d during the first five months, according to latest data from the Ministry of Economy, Trade and Industry.

However, Saudi Aramco could breathe a sigh of relief as the company maintained its stranglehold on Asia’s biggest oil consumer. China received 223.858 million barrels of crude oil from Saudi Arabia over January-May, up 9.8% from 203.811 million barrels imported a year earlier, latest data from General Administration of Customs showed.

Aramco’s recent shift in its marketing strategy to focus on customer diversification has paid off as the supply increments to China in H1 were mostly attributed to its new customers in the independent refining sector — Zhejiang Petrochemical Co. and Hengli Petrochemical (Dalian).

The Saudi crude supplier typically focuses on China’s state-run oil firms with stable demand and credit, but it is now targeting larger independent refineries.

The greenfield 400,000 b/d Hengli signed a term contract with Aramco in late 2018 to secure 130,000 b/d of supplies in 2019.

Aramco also agreed to supply 116,000 b/d of crude to the 400,000 b/d ZPC for 2019, under a term contract. In addition, the state-owned oil supplier is also taking a 9% stake in ZPC in an effort to extend its value chain in China’s refining and petrochemical sector.

Reflecting the Saudi term supply contracts with the new Chinese customers, Saudi Arabia supplied 17.922 million barrels of crude oil to China’s independent refining sector during H1, more than a ninefold surge from 1.905 million barrels supplied over the same period a year earlier.

The GAC data showed that Saudi Arabia’s market share in China improved slightly to 14.9% over January-May from 14.6% a year earlier.

Without the fresh 2019 term supply deals with the two independent refiners, Saudi Arabia could have lost its top crude supplier position to Russia, which supplied 220.201 million barrels and held a 14.6% market share in China for the first five months.

RUSSIAN COMPETITION

Apart from the continued arbitrage inflows of light sweet US crude cargoes to Asia, Saudi Arabia will likely continue to compete against Russian barrels to protect its market share in China as well, Asian trade sources said.

Earlier this month, Russia and nine other non-OPEC producer allies approved a nine-month extension of their output cuts at the same levels, joining OPEC in its market rebalancing efforts, S&P Global Platts reported earlier.

Russian energy minister Alexander Novak said that the extension would send “a strong signal to the market that underlines our resolve.”

Despite both Russia and Saudi Arabia expressing strong commitments to keep production in check for the next few quarters, the non-OPEC producer appears to hold advantage over the Middle Eastern OPEC kingpin in their quest to gain an upper hand in the Chinese market share.

Both China’s state-run and independent sectors continue to favor Far East Russian ESPO Blend crude for the grade’s attractive price tag and close supply proximity, Asian market sources said.

ESPO blend remained as the top feedstock crude for independent refineries in June, with 16.273 million barrels of the medium sweet grade feeding the sector, up 33.3% from May’s 12.168 million barrels, Platts monthly survey showed.

The spread between Saudi Aramco’s outright official selling price for Arab Light crude bound for Asia and Platts monthly average Far East Russian ESPO Blend crude assessment was minus 7 cents/b in June, compared with minus 40 cents/b in May, minus 69 cents/b in April, minus 95 cents/b in March and minus $1.31/b in February, Platts data showed.

Strong demand for gasoil production has also been supporting the growing appetite for the ESPO grade, according to industry sources.



“ESPO gives better yields of gasoil, and coupled with shorter voyage times and smaller lots, all makes it a very good feedstock,” an independent refinery source said.

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Category Business | 2019/07/10 latest update at 10:18 AM
Source : Internet | Photocredit : Google
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