SEATTLE (Oil Monster): One of the least talked about dynamics of the global crude oil market is the role China plays in setting a floor and a ceiling for prices.
The world's largest crude importer has quietly built a track record of buying excess oil to build inventories when its refiners and government deem prices to be cheap, and conversely pull back on imports when prices rise too high, or too rapidly.
Because the shifts in imports happen with a lag of several months, given the time between when a cargo is arranged and delivered, it is not immediately obvious to analysts and reporters covering the crude market.
However, there are some early signs that China is shifting its imports to favour more competitively priced crudes, while also trimming imports from April onwards.
This is likely being done as crude oil prices have risen sharply in recent weeks amid the uncertainty created by tensions between the United States and Iran, with concern that a U.S. military strike may result in Iranian retaliation against oil installations and tankers in the vital Persian Gulf area.
Global benchmark Brent futures hit the highest in nearly seven months on February 23, reaching $72.50 a barrel, and have rallied 23% since the seven-month low of $58.72 on December 16.
The rise in Brent has made crudes that are priced against it more expensive on a relative basis, such as those from West African producers Nigeria and Angola.
In turn this has led to producers offering bigger discounts in order to clear cargoes, with traders reporting that some West African grades are being sold at discounts of up to $5 a barrel over the Dated Brent benchmark, up from around $3 earlier this month.
China is often seen as a buyer of last resort for West African crudes, and the high discounts on offer show that there is limited appetite for extra cargoes.
Higher freight rates are also making it more expensive to land West African crudes in China, especially since Middle East producers have been lowering their prices in recent months.
Saudi Arabia, the world's largest oil exporter, cut its official selling price (OSP) for its main Arab Light grade for Asian refiners for a fourth month for March-loading cargoes.
The March OSP for Arab Light crude was set at parity with the Oman/Dubai average, down from a premium of $0.30 a barrel in February, the lowest since December 2020, according to Reuters' data.
China has responded by buying more Saudi crude as well as other similar grades from Gulf producers.
Courtesy: www.reuters.com
