SIMIC

 China’s independent refineries will receive the country’s first US crude oil cargo since December 2019 in mid-May in line with its trade pact to buy an additional $18.5 billion of energy goods from the US on top of 2017 volumes, market sources and trade flow trackers showed.

The expected arrival in May was within expectation as a few refineries returned to the market for US crudes in March when the Chinese government began accepting applications for tariff exemption on US crude.

“May is just a start, arrivals will gradually go up in June, and more will come in July,” a Shandong-based independent refiner said.

The first delivery will be a cargo of about 1.3 million barrels of US crude, which was loaded into Alaskan Nevigator and departed from Valdez on April 25, S&P Global Platts’ trade flow tracker cFlow showed.

The cargo is expected to arrive at Dongjiakou Port in Eastern China Shandong province on around May 12, according to cFlow.

“The cargo is Alaska North Slope, chartered by BP and private Shenchi Petrochemical is one of the buyers,” a source with knowledge of the matter said.

A second source with knowledge about the matter said independent Luqing Petrochemical is the other buyer of the ANS cargo.

ANS crude, which has a typical API gravity of 32 degrees and sulfur content of 1.5%, is mainly purchased by US West Coast refineries and moved via Aframax from Valdez, Alaska, to facilities in Washington and California.

Meanwhile, another trade tracker Kpler showed a VLCC Adventure loaded and departed from the LOOP in US on April 1 and set to arrive at the destination Qingdao port in Shandong province on May 24.

The cargo was chartered by Equinor, according to Kpler.

Further information about the cargo loaded in the LOOP is not immediately available.

In March, Chinese independent refiners took at least two cargoes of US sour crude grade Mars at a discount of $8-$9/b to ICE Brent for July delivery into China, refining sources said.

State-owned companies Unipec and PetroChina became more active in taking US crude in April when crude prices were depressed amid weak demand and oversupply due to the coronavirus epidemic.

UNLIKELY TO BE HEAVY ENOUGH
The plunge in oil prices makes it difficult for China to meet the Phase One of the China-US trade deal.

“The volume from US was unlikely to be heavy enough, a Shanghai-based crude oil trader said, “because cheap crudes are everywhere, not just US crudes which are quite light to most of the Chinese refineries.”

The Ministry of Finance also said earlier that tariff exemptions would only be granted for purchases that are economically and commercially viable, indicating that US commodity imports would still be subject to market restrictions.

China has committed to buy $18.5 billion more of US energy products in 2020, over what it bought in 2017, and $33.9 billion more in 2021, over 2017 levels, with expectations of similar levels through 2025.

The deal covers crude oil, LNG, refined products and coal, of which crude oil and LNG are expected to comprise the bulk of the purchases as they are the most traded and have the largest market in China.

China in 2017 bought about 153,000 b/d of US crude oil that was worth $3.2 billion at an average price of $57.59/b, data from the General Administration of Customs showed.

In 2020, assuming an average oil price of $30/b since China resumed buying in March, China will have to buy 2 million b/d of crude oil to run up a bill of $22 billion, according to Platts calculations.

In comparison, China’s top crude oil supplier Saudi Arabia delivered 1.77 million b/d of shipment in Q1, GAC data showed.

China’s US crude oil imports hit a record high in 2018 at about 247,000 b/d before falling to 128,000 b/d in 2019 amid the ongoing trade dispute.