Chinese refiners try out cheap, exotic oil from Europe: sources

[SINGAPORE] Bargain-hunting Chinese buyers have snapped up very cheap and sometimes obscure crude oil grades, mostly from Europe, where the impact of lockdowns to halt the new coronavirus has devastated demand.

Chinese purchases of Brent-linked grades jumped in April, including North Sea, Russian and Caspian oil, eight traders said.

"If there is a buyer in Europe now, it is China," a Mediterranean oil trader said on condition of anonymity.

However, the buying of physical cargoes has eased as expectations of a deal to tackle a global oversupply at talks between Opec (Organization of the Petroleum Exporting Countries) and its allies later this week changed the structure of the oil futures curve.

The Brent discount to Dubai narrowed to US$1.35 per barrel from nearly US$5 per barrel a week ago, making arbitrage shipments to Asia less attractive.

North Sea grades purchased included Balder, Flotta and Chestnut crude, while Guyana's Liza crude was sold into China for the first time, the trade sources told Reuters. Balder and Chestnut are not commonly seen in the spot market.

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"We are seeing these grades for the first time," one of the traders said. "They have no demand in their local markets and have to be sold out of their regions."

Balder and Liza were sold at spot discounts of US$7.30-US$7.50 to ICE Brent for July arrival, while Flotta crude was sold at a discount of close to US$7.00 to ICE Brent for late June arrival, the sources said. The price for Chestnut crude was not immediately available.

"These are absolute bargains and absolutely worth buying," an Asia-based trader said. "It would be a pity not to pick up the cheap barrels."

The low-sulphur grades are also good substitutes to popular ones such as Russia's ESPO crude and Brazil's Lula crude, which were still offered by traders at comparatively high spot differentials in the China market, the sources said.

Independent refiners collectively account for a fifth of China's crude imports and their purchases are restricted by quotas.

Buyers are waiting for a second batch of quotas that could be issued in the second half of April, two Chinese refining sources said.

KAZAKH CRUDE SALES SOAR

Chinese refiners increased purchases of Kazakh CPC Blend after its price collapsed to previously unseen levels, traders said. Last week, CPC Blend was valued at just US$5 a barrel taking into account freight and the European physical benchmark.

China's purchases of April-loading CPC Blend could top five million tonnes, the equivalent volume of its monthly loading programme, two traders in Mediterranean market said.

Typically, China takes less than 0.5 million tonne of the grade each month, Refinitiv Eikon shipping data shows.

Chinese refiners, both state-owned and independent, ramped up purchases of Russian Urals crude in April to more than two million tonnes - a record volume for monthly imports of the grade, traders said.

Urals and CPC Blend were sold at discounts of US$6 and US$12 per barrel against July ICE, traders said.

"Urals fits for both - teapots and big refiners. Differentials for April cargoes have been in fine shape thanks to Chinese buying," a source in the Russian oil market told Reuters. 

REUTERS