January 16, 2024 [Reuters]- Chinese refiners are actively booking crude oil cargoes for delivery in March and April to replenish stocks, locking-in relatively low prices and in anticipation of stronger demand in the second half of 2024, trade sources said.
Global benchmark Brent futures have stayed under $80 a barrel since December despite rising tensions in the Middle East, making oil attractive, while Beijing has issued fresh quotas for crude imports and fuel exports to refiners, allowing them to boost purchases and operations.
Robust demand from the world’s top crude importer is underpinning spot premiums for Middle East crude exports even as Asian refiners plan seasonal maintenance for the second quarter that typically reduces the region’s oil demand.
“There will be a stock-building spree over the Q1-Q2, in preparation for the summer,” said Kpler analyst Viktor Katona, repeating a trend seen by Chinese refiners in 2023.
“This has worked wonders for them last year and this year it seems to have an even better delineation between a weaker H1 and a stronger H2.”
China bought record volumes last year to build its biggest ever oil stockpile of more than 1 billion barrels. Refiners started drawing down stocks from late July, helping China to sail through a price rally powered by voluntary output cuts by OPEC kingpin Saudi Arabia last year.
China’s crude stocks fell to 933-951 million barrels last week, data compiled by analytic firms Vortexa and Kpler showed, after refiners ramped up crude processing in the fourth quarter.
“Chinese refiners, led by Unipec, are moving quickly this month … They snap oil from all over the world, except for the U.S. due to high freight rates,” said an oil trader with a Chinese refiner, referring to the trading arm of Asia’s largest refiner Sinopec (600028.SS).
Unipec is ordering more Brazilian and Middle Eastern crude in January than in the previous two months, said another oil trader, although traders said it is hard to quantify its purchases.
In January, traders are booking crude cargoes for delivery in March and April to China.
DECLINING INVENTORY FOR SINOPEC
Sinopec’s inventories dipped to below 300 million barrels last week, compared with an all-time high of about 350 million barrels in mid-June 2022, said Vortexa analyst Emma Li.
“If the current rate of stock draws continues, Sinopec’s inventories are projected to reach a two-year low in March,” she said.
Meanwhile, Angola’s February-loading cargoes have mostly sold out due to a rebound in sales to Asia, primarily to China, according to several Europe-based trading sources.
The average spot premiums for Middle Eastern oil benchmarks Dubai, Oman and Murban rebounded to around $1 a barrel to Dubai quotes, up from 38-month lows of below 50 cents a barrel in December, bolstered by robust trade and supply disruption concerns over the escalating tensions in the Red Sea.
Chinese state refiners have also ramped up output and refined products exports after receiving new quotas.
“It’s hard to tell the demand picture in the upcoming months, but it should be at least better than now,” said the Chinese oil trader.
“Current oil prices are still within our comfort zone, so refiners cannot go wrong to refill some stockpiles.”
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