Refiners seeking discounted arbitrage grades
Current economic situation a cause for concern
Bitumen prices continue to rise
Refiners in China are eyeing discounted barrels of heavy sour arbitrage crudes amid rising demand for products such as bitumen while reducing intake of light and medium sour grades as local economic concerns continue to weigh on oil market sentiment, sources told S&P Global Commodity Insights.
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Register NowChinese buying appetite in August has remained subdued so far amid weaker economic data emerging from the country, sources said. With the July retail sales and industrial production in the world's second-largest economy growing far slower than expected, as the official data released on Aug. 15 showed, oil market sentiment has rapidly turned sour, sources added.
However, refiners are increasingly looking at shoring up supplies of various heavy sour arbitrage crude grades from places such as Colombia and Canada that are being offered at fairly steep discounts, an oil trader in Singapore said.
"There has been a small but concrete message of increased demand [from China]," the trader in Singapore said.
Canadian heavy sour crudes loading in September were heard offered at a discount of around $12-$13/b to November ICE Brent, DES, while Colombian Castilla Blend was heard offered at a discount of around $7/b to the November ICE Brent contract, DES, sources said.
Related content: Platts periodic table of oil
Apart from the state-owned enterprises in China, the independent refiners are also eyeing these discounted barrels, although no immediate purchases have been heard lately, traders said.
"There are small teapot [refineries] asking for heavy crudes, so those are positive signs," the same trader in Singapore said.
Economic concerns
Concerns over the state of the Chinese economy continue to bother refiners, which are increasingly making the switch to heavy sour grades and cutting output of lighter products, sources told S&P Global.
"Chemical product demand is very bad in China, with the product prices staying at the levels equal to the price of crude at $40s/b, while demand for the middle distillates and residuals like bunker fuel oil or asphalt is better than petrochemicals or the light ends like naphtha," a Beijing-based crude trader said.
Furthermore, competitive prices for heavy grades make them a more preferred option for now, while demand for products such as gasoil and jet fuel would only be sustainable during the harvest season, when aviation rules are relaxed, sources said.
Chemical products are widely used for property renovation and construction but demand from the sector slumped due to cash flow problems. Tens of thousands of people are refusing to pay their mortgages for uncompleted apartments, slowing down private residential construction in the country, S&P Global reported previously.
"The problem is unlikely to be solved in the short term, while the government has announced not to employ strong simulators to boost the economy. I can't see a strong rebound in crude demand, especially light crudes," a Beijing-based analyst said.
Bitumen boost
While the private property market continues to slacken, government spending on infrastructure is supporting demand for heavy products such as bitumen.
Spot trading activity for bitumen in Singapore has been firm in the last two weeks, especially buoyed by steady demand from China, while the regional market remains relatively tight in supplies, traders said.
FOB Singapore bitumen has averaged $571.67/mt over Aug. 15-17, compared with $558.56/mt in the previous week over Aug. 8-12, according to Platts assessments from S&P Global. Meanwhile, Singapore 380 CST HSFO has averaged $487.48/mt over Aug. 15-17, compared with $489.13/mt over Aug. 8-12, the data showed.
"Should be [seeing more oil demand] as domestic investment is going [to] go up fast," a second trader in Singapore said.
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August 18, 2022 at 01:36PM
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China eyes more heavy crude grades amid weaker economic factors: sources - S&P Global
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