Chinese Refiners Try Out Cheap, Exotic Oil From Europe

SEATTLE (Oil Monster): 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 and its allies later this week changed the structure of the oil futures curve.

The Brent discount to Dubai narrowed to $1.35 per barrel from nearly $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.

“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 $7.30-$7.50 to ICE Brent for July arrival, while Flotta crude was sold at a discount of close to $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.

Courtesy: www.reuters.com