Oil Traders in Line for Bumper Billion-Dollar Profits on Super Contango

March 27, 2020

The biggest oil traders are set to rake in billion-dollar profits this year possibly even matching those seen during the 2008-09 financial crisis as steep contango, huge price fluctuations and low flat prices combine to create a perfect trading storm, industry sources said.

As was the case in past oil crises, the most recent of which was in 2014-15 when a similar output hike was made by Saudi Arabia, opening up a huge contango, i.e. when the price of a commodity today is worth a lot less than in the future, that played straight into the hands of traders who have become experts in the store-now, sell-later play.

"This is the best market for the trader. They look for the most distressed seller in the market and buy the cargo, you get the cheapest price and the contango to lock-in," said one source, who had carried out such so-called contango trades in previous cycles.

At that time, Ivan Glasenberg, chief executive of Glencore, said 2015 could be a "blowout" year for their oil trading business before his company and several other oil firms went on to chalk up some of their best performances in years.

The forward curves are showing a six-month contango of $10.50 for Brent, $6.90 for Dubai and $9.90 for WTI, sources said. At the same time, physical differentials against these benchmark prices are at historical or multi-year lows in just about every producing region including the Middle East, North Sea, Russia and West Africa, traders said.

Trades for May-loading Murban, for example was done at a discount of more than $2.00/bbl to its official selling price (OSP), while Urals were pegged in the Rotterdam market at over minus $4.00/bbl to Dated Brent, they said.

In other words, there's a lot of room for traders to maneuver in their efforts to build up a contango play. Throw into this mix the widest negative Brent and Dubai EFS spread ever and volatile freight rates, a savvy trader will have all the ingredients necessary to come up with strategies that give huge profits.

The spread between May ICE Brent futures to Dubai swaps was at a record low of minus $4.72/bbl, which is a record discount that Brent-related crudes have over Dubai-linked grades, broker data show.

During the 2014-15 oil glut, Vitol, the world's biggest independent oil trader, reported net profit of $1.6 billion in 2014, while Trafigura saw its gross profit soar 50% to $1.7 billion in that same year through September, according to media reports at that time. Oil majors such as BP, which have nimble trading outfits, also recorded massive profits.

Shipping fixtures released on Friday showed that companies are still on the lookout for tankers for the storage play as the coronavirus disease 2019 (COVID-19) spreads further with India being the latest of the major economies to announce lockdowns that are set to decimate oil demand.

Shell booked the very large crude carrier (VLCC) Maran Corona for a voyage from the U.S. Gulf Coast to East Asia with storage option, while Hess has the Desimi on charter for the same journey for $15.25 million that includes 60 days storage at $95,000/day, a fixture list showed.

This price is higher than those paid by companies, which were ahead of the curve and made such tanker bookings prior to the surge in rates.

Bahri, the shipping arm of Saudi Aramco, for example had taken at least 16 VLCCs on time charter, which turned out to be the trigger for freight to jump.

Prior this, Glencore, for example, chartered an ultra large crude carrier (ULCC) for $37,000/day for at least six months, which worked out to a carrying cost of about $0.40-$0.50/bbl per month.

The freight market is also showing tremendous volatility, VLCCs were chartered a week ago for the North Sea to Korea route at up to $13.5 million, these were subsequently failed and then re-booked this week at $11-$11.5 million, or about $1.00/bbl less, fixtures show.

In India, talks are emerging of importers seeking to defer term loadings and possibly re-sell cargoes that are about to be loaded or already on the waters, possibly at a cheaper price even, market sources said.


--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com;

--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com

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Brent-Dubai Arbitrage Marker Breaks Under Strain of High Freight, Low OSPs

March 23, 2020

Adding to the chaos and confusion in the oil market, a key indicator to measure the viability of shipping arbitrage Brent-related crudes to Asia has broken on the back of sky high freight rates and heavily-discounted Middle East barrels, according to industry sources.

The front-month Brent-Dubai spread, or exchange for swaps (EFS), fell to minus $3.55/bbl on Thursday, broker data show, which industry sources said was the weakest in at least two decades. Typically, a spread of under plus $3/bbl was enough for traders to look to work the incremental arbitrage.

These additional barrels include flows of marginal cargoes from the North Sea, West Africa and even North Africa, they said.

"Things are getting out of intuition these days," said Feng Xiaonan, IHS Markit downstream analyst in Beijing, summing up the breakdown in price relationships following the twin impact of eroding demand caused by the coronavirus disease (COVID-19), and Saudi Arabia's decision to open its oil tap and slash prices a week ago.

Freight became a critical factor as well as an obstacle in this exercise after a deluge of players moved in to snap up tankers for use as floating storage as the weak market flipped into contango.

Bahri, the shipping arm of Saudi Aramco, made the rare move of snapping up very large crude carrier (VLCCs) on time charter, which triggered a jump in freight rates.

In the past few days Bahri has given up at least five of the around 25 VLCCs it had put on subject, leading to a slight easing of freight rates, shipping sources said.

Currently, it costs about $6.00/bbl to ship West Texas Intermediate (WTI) crude from the U.S. Gulf Coast to Singapore, one market source said. This means freight costs is more than 22% of the value of WTI crude at about $27.00/bbl.

The numbers are not too dissimilar from the North Sea to East Asia with fixtures from last week showing bookings at $13.5 million for a (VLCC), which works out to $6.75/bl.

However, a fixture list released on Monday showed two of the charters, both by Vitol, were failed. The first, the Bunga Kasturi Enam, was due to load from the North Sea on April 10 and the other, the Amyntas, was due to pick up Forties from Hound Point on April 20-25; both tankers were bound for South Korea, the report showed.

"Freight is very expensive, and the arbitrage is closed," said one source, adding that the cut to official selling prices (OSPs) by Middle East producers also tampered the Brent-Dubai relationship.

A week ago, Saudi Arabia triggered a supply avalanche from the Middle East after output cut talks at the OPEC+ meeting broke down and Russia walked away from the negotiating table.

On the back of the supply increase, Saudi Aramco also slashed its OSPs by about $6/bbl, which was also followed by other producers in the Middle East including the United Arab Emirates, Iraq and Kuwait.

This led to Asian refiners buying the crack spreads to lock-in their margins, which meant buying Dubai crude and selling products, leading to the initial flip in the Brent-Dubai spread into negative territory. This was pushed further down by funds coming in to sell outright Brent in the futures market, market sources said.

The falls were triggered by forecasts for massive demand destruction in the West as COVID-19 spread unabated, leading to bigger deaths in Italy than in China, where the virus first started and has a bigger infection rate overall.

"Our estimate is that world oil supply will exceed demand in the first half of the year by approximately 1.8 billion bbl, which is 200 million bbl more than the upper end of estimated available crude oil storage capacity," IHS Markit said in a March 20 report.

This means that the market for floaters is unlikely to go away anytime soon.

The same goes for the contango, which should ensure that freight stays reasonably high in the immediate future, the sources said.

Cheap floating storage space, such as Glencore's charter of the ultra large crude carrier (ULCC) for $37,000/day for at least six months, which worked out to a carrying cost of about $0.40-$0.50/bbl per month, is non-existent at the moment, they said.

Time charter earnings fell on Friday, on news of the Bahri VLCC release, to $120,319/day compared with a high of $264,072/day on March 16, according to data from the Baltic Exchange based on its TD1 (ME-USG) and TD3C (ME-China) routes. That was the highest since the Exchange started recording data from Feb. 2, 2008.

In the meantime, traders looking to work arbitrage barrels will have to compare on an outright basis the ultimate landed price to China, South Korea or Singapore and not look to the Brent-Dubai spread for signs as it is no longer meaningful, market sources said.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com

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Saudi Arabia to Boost LPG Supply as Oil Taps Open, CP Under Pressure

March 19, 2020

Saudi Arabia will export increasingly more liquefied petroleum gas (LPG) as the kingdom opened its oil taps after the OPEC+ output cut talks fell apart with Russia walking away from the negotiating table, industry sources said.

The increase in Saudi supplies comes at the same time as China waived import tariffs on U.S. cargoes in part due to damage caused by the coronavirus disease (COVID-19) and also to fulfill its end of a trade deal to buy more from Washington.

The cheaper U.S. cargoes has led to a leveling up of the two LPG markers in Asia, i.e. the Saudi Aramco monthly Contract Price (CP) and the Far East quotes as well as put pressure on the AG benchmark due to swelling supplies from the Middle East, the sources said.

"As a rule of thumb, 1.8 million mt of LPG production a year is associated with 1 million b/d in crude oil production," said Yanyu He, IHS Markit executive director for NGLs. Consequently, if Saudi Arabia were to ramp up to 12 million b/d from its recent level of around 9.7 million b/d, this could imply an annualized increase of some 4 million mt in global LPG supply, he added.

Saudi LPG output shrank in March due to maintenance at the Yanbu refinery leading to all cargoes scheduled for loading out of Ras Tanura instead of being split between the two ports and compliance to the output cuts, which become moot after the breakdown in talks in early in the month, said sources.

State-run Saudi Aramco was initially expected to ship the lowest volume in two years in March, with an estimated 8-10 VLGCs due to load but this grew quickly after as many as 4-5 rare spot cargoes were offered from over the weekend, they said and according to data from IHS Markit's Waterborne LPG report.

In total an estimated 620,000 mt, or 13-14 VLGCs, are due to be exported in March compared with a much higher 760,000 mt in April as Aramco offered more cargoes to term and spot buyers.

Aramco typically ships monthly about 16 VLGCs and approximately 60% of the cargoes are lifted from Ras Tanura against 40% from Yanbu, based on monthly average liftings in 2019 in the Waterborne LPG report.

At its peak, Saudi Arabia exported 820,500 mt in March last year against the lowest level of 509,000 mt in May, based on the Waterborne LPG report.

Asian buyers usually prefer lifting from Ras Tanura due to its proximity, said market contacts.

This increase in volume has weighed on AG FOB differentials. Spot cargo transactions were trending lower to a discount of single-digit to the April CP, and in turn also put pressure on CFR Japan prices that led to offers at a smaller premium to the Far East quotes from double-digit premiums in early March, market sources said.

Prior to the removal of tariff on U.S. imports from China, the prompt month CP swap traded at a hefty premium of $66/mt to the Far East quotes, supported by strong demand from the Chinese petrochemical sectors.

The spread swiftly crumbled on the day tariff waiver applications opened and slumped to minus $23/mt on March 3 where at least eight importers received approvals for April, according to OPIS record.

However, the impact of increased production from the Middle East could throw yet another spanner into an Asian market already buffeted in recent months by the US-China trade war and dwindling domestic demand due to COVID-19.

"U.S.-origin cargoes are still cheaper," said one source, but added that the prospect of increased production in the Middle East meant that LPG parcels from the AG might remain competitively priced relative to U.S. cargoes.

Chinese importers have bought around five full cargoes of U.S. origin materials to date, all of which traded at a premium of $30-45/mt compared with above $60s/mt prior to tariff removal, according to market sources.

Meanwhile, freight on the Middle East to Japan route immediately rebounded from a five-month low of $54/mt after the first spot sales were done by Aramco and reached $59/mt as of Wednesday, as more vessels were booked to take cargoes from the Arab Gulf to East Asia.

It remains to be seen who, between the U.S. and Saudi Arabia, can grab a larger market share in China as downstream demand and inventory could eventually reach its ceiling as a potential global recession looms on the horizon, they said.

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--Reporting by Lujia Wang, Lujia.Wang@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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Asian Refiners Grapple With Supply Glut Again After Brief Saudi OSP Respite

March 18, 2020

Asian refiners are bracing once more for tough times as the oil demand destruction spreads to more countries, after they enjoyed the briefest of a brief purple patch in the immediate aftermath of the twin Saudi Arabia action of opening its taps and slashing official selling prices (OSPs).

The refiners, who saw first-hand the scale of oil consumption vanishing in China in the wake of the coronavirus disease (COVID-19), are adjusting to the new reality of lost export outlets after bumper overseas sales in the past month, industry sources said.

A week on from the Saudi actions, a few winners and losers have already emerged but what will happen in the longer term is still up for debate as unlike the most recent output cut executed in 2014, the global economy is not geared up to absorb the surplus barrels with a virus-triggered recession high on the agenda, they said.

"World oil demand is collapsing every day; we are looking at a potential recession on the horizon. The oil price will be low if Saudi Arabia and the other Middle East producers continue to pump more and there will be a surge in inventory," said Premasish Das, IHS Markit downstream research & analysis director in Singapore.

The reduction in global oil demand in the second quarter could reach or exceed 10 million barrels a day (b/d), Das said. Such expectations are not fanciful when compared with the demand destruction seen in China alone in February, which is estimated at close to 6 million b/d.

In this instance, the question that pops into mind is where all those millions of extra barrels that are coming out of the Middle East will go.

Industry sources say that Asia is not going to be a major beneficiary as much of the Saudi cargoes are heading West to Europe and the U.S., which they said explained the charter of as many as 30 very large crude carriers (VLCCs) by Bahri, the shipping arm of state-run Saudi Aramco.

"The Saudis are taking the fight to the U.S. and Europe, they are targeting shale oil and Russia. If you look at the OSPs the price to Asia is still about $1/bbl more than that to the U.S and Europe," said one crude market source, explaining that there was no change to the price structure.

Requests by Asian term buyers for more crude oil in their April loadings, to take advantage of the lower prices, were not accepted by Aramco, market sources with knowledge of the matter said.

On the other hand, similar nomination hikes by refiners in the West were accepted, they added.

"This is a price war, it's not about market share," said one crude oil trader, adding that the Saudis were, once more, fed up of having to take the lion's share of the output cuts but yet only enjoying a little of the benefit.

Although Saudi Arabia remains Asia's largest crude supplier, its market share has dampened over the years with Asian refiners diversifying crude sources on the back of large Saudi production cuts since 2017, IHS Markit said in a report released on March 17.

"Despite the 2.5 million b/d rise in Asian crude purchases from 2016 to 2019, imports from Saudi Arabia increased by only 300,000 b/d during the period -- lower than the rise in imports from Saudi's biggest competitors Russia (530,000 b/d growth) and the U.S. (980,000 b/d growth)," it said in the report that was co-authored by Das.

As much as Aramco was not enticing Asian refiners with disproportionately cheaper crude, its shock-and-awe tactic will weed out more-expensive, further away producers and in the longer term raise its market share in Asia, one market source said.

In the meantime, players who are only now looking to cash in on the current low prices will feel left out as all the contango play has already taken place as seen by the sharp jump to VLCC freight rates that have made such store-now-sell-later strategy moot, the sources said.

A few companies had traders coming in over the previous weekend to snap up left over supertankers, after the Bahri splurge, for just such actions leaving the rest to cough up sky high prices, a source said.

On Monday, Reliance Industries booked a VLCC for the AG-WCI voyage at a record Worldscale (WS) 400, as much as four times what they would pay in normal circumstances.

Another trading move seen straight after the OSP cut was refiners locking in their cracks, or refining margins. Those who managed this are sitting pretty as the jet fuel crack, for example, sank to $3.11/bbl on Tuesday compared with $6.75/bbl on March 6, according to IHS Markit OPIS assessment, which sources say is the lowest in at least a decade.

These refiners do not even need to run their facilities and sell their products to enjoy this boon, they could simply unwind their paper positions and collect their profits, traders said, which they add is somewhat reassuring a market that is already swimming in a pool of unsold diesel, gasoline and jet fuel.

Refiners are also advancing maintenance schedules, cutting runs and tweaking them to maximize certain products, including minimizing jet fuel, the worst of the oil products affected by COVID-19 due to the multiple travel bans, they said.


--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com;

--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com

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Traders turn to giant tankers for storage

March 12, 2020

Traders are increasingly turning to giant tankers to store oil amid improving storage economics, market sources said.

Among the tankers used for such purposes is the AET 2005-built very large crude carrier (VLCC) 300,000 dwt Bunga Kasturi Dua, which Brazilian state-owned refiner Petrobras chartered last month for 30 days at a rate of $21,000/day with an option for another 30 days extension. The tanker is likely to float around Indonesian or Malaysian waters, market sources said.

Chinese charterer Northern Petroleum International, the shipping arm of independent Chinese refiner Zhenghua Oil, had meanwhile booked the 2011-built VLCC Athenian Glory for 40-70 days to use as floating storage around Singapore at $28,500/day.

Another Chinese trading firm, Unipec, chartered the Elandra Elbrus for a 6 months storage at $37,500/day, a shipbroker said. The vessel made its maiden voyage from Al Basra Oil Terminal, Iraq to Yosu, South Korea from Feb 1 to Mar 4, IHS Market Intelligence Network showed. The tanker is expected to remain parked in north Asia, market sources said.

Ultra large crude (ULCC), the largest class of oil tankers which could store over 3 million barrels of crude per vessel, are also being used as floating storage, according to shipping sources. There are at least two ULCCS floating
around Malaysian waters-- the 441,561 dwt Europe and the 441,561dwt Oceania. The latter is owned by EuroNav, who is using the tanker to store very low sulfur fuel oil (VLSFO) and heavy sweet crude, market participants said.
Shipping sources pegged the chartering rates for ULCCs at around $35,000/day.

The same trend could be detected outside of Asia. UK-based Tullow Oil took the VLCC Kokkari for a short- term storage, likely to store west African crude, shipbrokers said. Vitol was also seen to have chartered the VLCC Ridgebury Purpose for six months at $37,500/day with an option to extend for another six months, they added. This tanker is likely to be stationed around the Mediterranean area.

It is common for traders to use tankers as floating storage but the recent uptick in such cases came at a time of improving storage economics in both the crude and fuel oil markets. The prompt timespread in the Brent crude market was at around $0.70/bbl in backwardation at the start of the year and narrowed to just $0.17/bbl on 2 Mar. The Singapore 0.5% sulfur marine fuel market was likewise at a $13/mt backwardation at the start of the year and had flipped to around $2/mt in contango on 2 Mar.

Storage economics improve as markets move from backwardation to contango. With the coronavirus disease 2019 (COVID-19) outbreak severely curtailing oil demand, it made sense for traders to turn to floating storages as oil inventories pile up, market sources said. Onshore tanks in the trading hub of Singapore cost around $0.7715/bbl a month with a minimum six-month lease. Current chartering rates worked out to less than $0.50/bbl a month for a VLCC and just around $0.35/bbl a month for a ULCC, according to a shipbroker's estimates.

Fresh enquiries for VLCCs have only increased this week, market sources said. The recent breakdown in talks between OPEC and key ally Russia on output cuts had not only led to a collapse in oil prices but also a widening contango in the crude and fuel oil markets. The prompt timespread in the Brent crude market and Singapore 0.5% sulfur marine fuel market stood at a $0.57/bbl contango and $4.50/mt contango respectively on 9 Mar Singapore close, making storage economics more attractive than before.

"Floating storage cost could potentially be lower than the contango structure in next couple of months and thus more economically attractive to store in VLCC rather than selling at cut-throat price now," said Matthew Chew, principal oil analyst at IHS Markit.

"A $5/mt contango for 0.5% sulfur marine fuel can technically cover storage costs after accounting for bunker and port charges," a European trader added.

Market sources however also point out that there are risks in holding on to physical cargoes in a bearish market where further demand destruction remained a possibility. The market contango might be steep enough to cover storage costs on paper, but "we don't think it is deep enough because our risk premium is so high," a trader said.

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--Reporting by Thomas Cho, Thomas.Cho@ihsmarkit.com
--Editing by Hanwei Wu, Hanwei.Wu@ihsmarkit.com

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Crude Oil Crash: Floating Storage Plays Emerge as Demand Contracts

March 9, 2020

Traders are looking to store crude oil on board tankers as inventories levels are set to jump and demand contracts for the first time in 11 years.

Global oil demand is now forecast at 99.9 million b/d in 2020, down around 90,000 b/d from 2019, and the first contraction since 2009, according to the latest estimates from the International Energy Agency. That's in stark contrast to the IEA's forecast last month that suggested global oil demand would grow by 825,000 b/d in 2020. This contraction comes amid a global oil supply surplus of 4.3 million b/d forecast for the first quarter of this year, according to IHS Markit data.

At the same time, traded volumes of forward freight agreements (FFAs), which help mitigate exposure to freight market risks, have steadily been increasing in recent weeks, according to the Baltic Exchange. Total weekly volumes for crude tanker FFAs are currently pegged at the highest level since Feb. 3, Baltic Exchange data show.

A collapse in crude prices could play into the hands of tanker owners as oil prices move into contango, leading to an increase in demand for floating storage, according to a shipping report by Norwegian investment bank Arctic Securities.

"FFAs are trading up and the market is looking at storage plays on VLCCs," a shipbroker told OPIS today. "Floating storage is still a way off, but it's looking more plausible."

There could be a potential downside swing in demand of between 1 million and 2 million b/d, arising from the coronavirus disease 2019 (COVID-19), and a 1 million-2 million b/d potential upside move on supply, depending on whether the Organization of the Petroleum Exporting Countries and other key producers, notably Russia, are able to reach an agreement on production cuts, according to an IHS Markit Oil Market Insight report today.

The plunge in demand for crude cargoes has impacted ship owners. Earnings for Very Large Crude Carriers slumped to $21,300/day by March 6 from around $75,000/day on Jan. 9, as demand from Chinese crude buyers slumped amid the outbreak of COVID-19, which saw operations come to a standstill across much of the country.

"Floating storage will be profitable if the 12-month spread is higher than the cost of the vessel and the interest charges for storing the crude," said shipbroker Poten & Partners. "We are not there yet, but the economics are moving in the right direction."


--Reporting by Rob Sheridan, rob.sheridan@ihsmarkit.com;

--Editing by Barbara Chuck, bchuck@opisnet.com

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COVID-19: China February Oil Demand Destruction at Record Levels, March Down

March 5, 2020

The fuel demand destruction afflicting China shrank oil consumption to record lows in February with March also set to show negative growth as it takes the nation longer to overcome the debilitating coronavirus disease (COVID-19), which is now spreading fast in other parts of the world.

China lost an unheard five million barrels a day (b/d) or more of oil demand in February, the most on record, according to preliminary estimates from IHS Markit. Consumption in March will also shrink, in contrast to earlier forecasts of a small growth, by over 1 million b/d.

“Based on high-frequency data, such as transportation, we estimate February demand was down at least five million b/d, that is huge. March will look better but it will still be about one-fifth of the loss in February,” said Feng Xiaonan, IHS Markit downstream analyst in Beijing.

“This is a lot worse than our initial forecast. We were looking at positive growth in March. Looking back, the recovery was not as fast as we anticipated because of the measures taken by the government to combat the spread of COVID-19, including numerous lock downs and quarantines.”

Overall, the sharp drop in February consumption will reverberate over the course of the year leading to forecast of a demand loss of about 370,000 b/d this year from 2019, according to early IHS Markit estimates.

“This is the first time that China is experiencing negative annual fuel demand growth and it will have a global impact as China contributes about 40% to the growth rate,” Feng said.  

IHS Markit had forecast oil demand growth of 500,000 b/d for this year prior to the COVID-19 outbreak.

The drop in oil consumption won’t have a massive impact on Chinese crude purchases over the course of this year, with buyers likely to take advantage of tolerance levels in term contracts, which in some cases allow as much 10% cuts, and trim opportunistic spot purchases, industry sources said.

China Seaborne Crude Oil Imports

raj 0305

Data from IHS Markit’s Commodities At Sea (CAS) is showing a slowdown in crude loadings bound for China starting to take place with 248 million barrels (8.55 million b/d) lifted in February, of which 52 million barrels have been delivered. This compares with 271 million barrels (8.74 million b/d) in January, of which 193 million barrels have already been discharged.

Crude sources said there’s still the chance of destination changes to the February loadings, especially from further away sources such as the North Sea, West Africa and South America, as traders look to place them elsewhere or take into storage in the face of limited appetite from independent, or tea pot, refiners.

These tea pots are the main buyers of crude oil on a delivered basis to China and traders that have already lined up cargoes for this market would have to look for new outlets, they said.

“There are a lot of U.S. crude that’s heading to Southeast Asia in March and April because of this sudden drop in Chinese demand. The tariff waiver and trade deal came a bit too early for traders to move January and February U.S. Gulf Coast (USGC) barrels,” said one source.

CAS data showed January exports from the USGC to Southeast Asia jumping to a record 14.5 million barrels, with loadings in February coming in second at 11.70 million barrels.

On the other hand, China is slated to receive only 2.77 million barrels of January and 3.21 million barrels of February loadings. Shipments rose to a peak of 13.59 million barrels in February 2018.

South Korea, which in recent months emerged as the biggest importer of U.S. crude, trimmed its purchases. Loadings in February fell to 8.75 million barrels compared with 15.15 million barrels in January and 16.15 million barrels in December.

The drop is in line with run cuts and maintenances undertaken by South Korean refiners as COVID-19 takes a firm hold in the peninsular, with infections soaring to almost 6,000, which is the most after China, market sources said.

The virus is spreading fast and other nations such as Italy and Iran where the death toll has risen to 107 and 92, respectively. These are also the most outside China. 

This wide and swift spread of COVID-19 is also likely to lead to oil demand crumbling in other parts of the world, which will mean that refiners in East Asia that have been relying on the export market to help clear the supply overhang will soon run out of places to place their surplus cargoes, market sources said.

“China kept its oil product exports at a high level in February but going forward this will be challenging, a lot will depend on global demand,” IHS Markit’s Feng said.

What was previously only restricted to China has now expanded to numerous countries as airlines curtailed their operations due to both government travel bans and a general drop in passenger traffic.

British Airways, for example, cancelled 24 flights between New York and London in March after having already curbed travel to China, Singapore, South Korea and Italy.

“January was just the tip of the iceberg in terms of the traffic impacts we are seeing owing to the COVID-19 outbreak, given that major travel restrictions in China did not begin until 23 January. Nevertheless, it was still enough to cause our slowest traffic growth in nearly a decade,” said Alexandre de Juniac, the director general and CEO of the International Air Transport Association (IATA).

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--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

--Editing by Sok Peng Chua, SokPeng.Chua@ihsmarkit.com

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Covid-19: Diesel Glut Triggers Arbitrage on Newly-Built VLCCs to Europe, WAF

February 27, 2020

The large-scale shipment of ultra-low sulfur diesel (ULSD) on board newly-built very large crude carriers (VLCCs) is back in vogue in Asia as traders sought to alleviate the supply glut due to demand erosion caused by the Covid-19 coronavirus.

One of the first such endeavor to emerge was via the VLCC Elandra Kilimanjaro, which left a shipyard in South Korea in February, and is currently in Pengerang, southern Johor, according to data from IHS Markit ship tracker.

The Elandra Kilimanjaro on Wednesday completed a ship-to-ship (STS) transfer with the product tanker Torm Herdis, which had picked up a 90,000 mt ULSD cargo in Singapore, the tracker data showed.

The Torm Herdis was provisionally booked to load 90,000 mt of ULSD in Singapore on Feb. 19 by Unipec bound for Europe with options for other locations, according to a fixture list released on Feb. 6.

The VLCC subsequently made its way to Pengerang terminal, site of large onshore tanks as well the 300,000 barrels a day (b/d) Petronas-Saudi Aramco refinery.

It would take another 180,000 mt to fill up the VLCC.

The use of newly-built VLCCs to transport ULSD and other clean products were rampant in the second and third quarter of last year amid a of flurry of VLCCs leaving shipyards in South Korea and China ahead of the IMO-2020 mandate. Their freight rates were cheap and traders locked in short-term time charters for the arbitrage trade, acting at times as floating storage.

Traders said there are signs that something similar is on the cards in the wake of cheap freight rates, especially for newly-built VLCCs, which give shipowners another option as they secure the vessel's certification.

In the previous such arbitrage play, traders gathered diesel and jet fuel from East Asia and the Middle East for shipment to West Africa (WAF) and Europe with over 10 VLCCs involved in the trade, market sources said at that time.

Diesel prices in Singapore have slumped to $61.89/bbl on Wednesday, which is the lowest since mid-August 2017, according to OPIS IHS Markit data.

Differentials have also taken in a hit, dropping to $0.22/bbl from $0.87/bbl in early-February, the data showed.

Shipping fixtures showed a slew of tankers fixed to move diesel from China and South Korea to Singapore, or with option to Europe. A total of 1.2 million mt was booked to load in February compared with 535,000 mt in January and 280,000 mt in December.

"China's gasoil demand over the first quarter 2020 is expected to contract by some 8% from the previous year," said Matthew Chew, principal research analyst at IHS Markit.

Demand for the first quarter of this year was estimated at 2.981 million b/d, while that for the same period last year was 3.354 million b/d, IHS Markit data showed.


Market Intelligence Network (MINT) Refined Products offers forecast columns and track the movement of on-water exports of jet-fuel, diesel and gasoline cargoes with real-time satellite AIS tracking intelligence. Learn More

--Reporting by John Koh, (John.Koh@ihsmarkit.com), Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com


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Covid-19: Unipec in Rare Shipment of Vietnam Crude to Hawaii

February 20, 2020

Unipec, China’s biggest oil trader, has chartered a tanker to ship a cargo of Vietnamese crude to Hawaii, in the first such shipment in more than three years, according to a tanker fixture and IHS Markit ship tracking data.

The cargo, which is destined for the Par refinery in Hawaii, may have offered Unipec an unexpected outlet in the face of declining demand in China due to the spreading Covid-19 coronavirus that has destroyed significant fuel demand in the region and beyond, industry sources said.

“Par Energy is buying to replace Libyan barrels and Unipec has term Vietnam cargoes,” said one crude trader.

Crude oil exports from Libya has virtually ground to a halt for over a month now due to a civil strife that led to the closing of about 1 million barrels a day (b/d), or around 90% of the nation’s output capacity, according to local reports.

Unipec booked the Aframax Victory Venture to load 80,000 mt of Su Tu Den and Bach Ho crude on March 1-3 for discharge at Barbers Point in Hawaii, a fixture list released on Thursday showed.

According to IHS Markit’s Commodities At Sea (CAS), this would be the first such shipment in data going to October 2016. Sarir crude from Libya is the largest grade processed by the Hawaiian refinery, the CAS data showed. It also runs Indonesian Minas and Duri as well as Murban from the UAE and Sokol from Russia.

Pars Hawaii Crude Oil Purchases


Pars Hawaii operates the state’s only refinery, located in Kapolei with a rated capacity of 94,000 b/d.

Unipec has been actively seeking alternative outlets, when economical, for its term crude cargoes due to shrinking demand in China as refiners slash runs, traders have said. It had mostly placed surplus term March Angolan barrels to buyers in the Mediterranean who also face supply issues due to the Libyan outage.

“Under the updated base-case scenario, we expect that Chinese refineries will need to deepen cuts to crude runs by as much as 3.5 million barrels per day (b/d) in February, 1.8 million b/d in March and 800,000-900,000 b/d in April from their original production targets before returning to normal operation rates in May and beyond,” the IHS Markit downstream team in Beijing said in a Feb. 14 report.

--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

--Editing by Sok Peng Chua, SokPeng.Chua@ihsmarkit.com

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Flaring at Rotterdam Refinery Ahead of Maintenance

February 19, 2020

Shell has issued a statement confirming that flaring at its 404,000-b/d Pernis refinery near Rotterdam was caused by a unit failure.

The market is eyeing developments at the refinery closely in case a large turnaround scheduled for May starts sooner than expected, a trader told OPIS.

OPIS revealed two weeks ago that a major turnaround was planned at Pernis.

Shell confirmed the story two days later and said that the maintenance would begin on May 6.

OPIS understands that maintenance workers will be on site in April.

"Due to the failure of a part of a factory, we currently have high flaring," the statement on the Shell Pernis website said today. No other details were given.

A source told OPIS this morning: "I drove by the Shell refinery and saw some heavy flaring."

A second source said that decreased unit heating was reported at a part of a hydrocracker at the refinery.


--Reporting by Anthony Lane, alane@opisnet.com;

--Editing by Paddy Gourlay, pgourlay@opisnet.com

Copyright, Oil Price Information Service

Oil Traders on Edge After U.S. Imposes Sanctions on Rosneft Trading

February 19, 2020

The U.S. sanction against mega Russian trader Rosneft Trading SA sent shock waves through the oil market as it evoked memories of a similar action against Cosco last September, which led to a kneejerk tripling of freight rates. 

“If end users rather err on the side of caution, like in the Cosco case, and blanket reject dealing with Rosneft cargoes, prices have more upside,” said one crude oil market source in Singapore.

Rosneft Trading, a unit of Russia’s largest oil company, is the intermediary involved in getting most of the crude and oil products produced by its parent company to the rest of the world. It markets crude grades such as Urals, ESPO, Sokol and CPC Blend as well as diesel, fuel oil and other residues made by Rosneft refineries.

In a briefing to the media, a transcript of which was posted on its website, the U.S. State Department said that companies that have contracts with Rosneft Trading can apply for a waiver if their deals are not related to Venezuela. These companies have 90 days, until May 20, to wind down their businesses.

“You would need – if you were in that situation, you would need to go to OFAC (Office of Foreign Assets Control) and seek a license to continue those other activities that you may claim are unrelated to Venezuela, and you’d have to make your argument, but the application is to the entire range of activities of Rosneft Trading S.A.,” its special representative for Venezuela Elliott Abrams said in the briefing held on Tuesday in Washington.

The State Department is confident that the moves would not have a significant impact on oil prices, adding that current levels were below that when the U.S. first imposed sanctions on Jan. 28, 2019. However, crude futures rose on Wednesday.

ICE Brent crude was up 52 cents, or 0.9%, at $58.27/bbl as of 4:08 pm Singapore time.

“Oil prices are lower today than they were when this campaign started. We’re not trying to raise oil prices. We’re trying to diminish the amount of money available to the Maduro regime,” Abrams said, referring to the current ruler of Venezuela.

The State Department stressed that its target was the flow of Venezuelan oil, which despite the over year-long sanctions is still continuing unabated.

“What is the company that is now handling about 70 percent of Venezuelan oil? It’s Rosneft Trading S.A. What is the company that is engaging in all sorts of tricks and evasions to try to get around U.S. sanctions on Venezuelan oil, the oil sector we sanctioned? It’s Rosneft Trading. So we went after the operational company,” he said.

Data by IHS Markit Commodities at Sea on charterers shows that Rosneft has been dominating shipment of crude oil from Venezuela.

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Rosneft said that the sanctions against its trading unit “are arbitrary and selective, as other international companies, including American ones, carry out similar activities in Venezuela, and the U.S. regulator does not claim them.”

“The U.S. Treasury Department has not provided any evidence of illegal activities of the Company, as well as of any violation of the unilateral restrictions imposed by the U.S. The Company is to consider options for its legal protection upon reviewing the documents published,” Rosneft said in a statement on its website.

Abrams said that the U.S. would reach out to the two biggest importer of Venezuela crude, China and India, to explain its policy.

“I think this is a very significant step and I think you will see companies all over the world in the oil sector now move away from dealing with Rosneft Trading,” he said, adding that the sanction was different to that imposed in 2014, which was restricted to technical activities such as drilling in the Arctic and access to western debt financing.

Oil traders said that if companies shun dealing with Rosneft Trading completely then there would be a big impact on the market, but if this was only restricted to Venezuelan barrels then the consequences won’t be huge.

It could only affect the heavy-sour grades, the mainstay of Venezuelan crude exports, which for now is mitigated by the Covid-19 coronavirus that has significantly eroded oil demand, especially in China.

“The macro picture is still lurking in the background, i.e., China demand erosion,” said one trader, adding that the full picture of the sanctions have yet to emerge.

--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

--Editing by Sok Peng Chua, SokPeng.Chua@ihsmarkit.com

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Analysis: US-China LPG Flow Likely to Resume, Yet Chinese Demand Uncertain

February 18, 2020

Through the State Council Tariff Commission, Beijing has revealed its plans to slash the 26%-28.5% tariffs currently imposed on U.S. LPG, via an application-based system that Chinese firms will use for the tariffs waivers, subject to approval. The applications will be accepted from March 2, 2020.

While the latest measure of the application-based system still subject to approval from Chinese government does not officially end the trade war between the country and the U.S., it is expected by sources to resume the U.S.-China LPG flow. The question is when this will start and how much U.S. LPG that China will draw.

A source noted that the official timeline could be applicable even to those vessels that currently in the Pacific. Out of around 28 laden very large gas carriers (VLGCs) in the North Pacific area currently seen, none of the vessels show China ports as their respective destination, according to IHS Markit shipping tracking data, but changes in destinations may be seen on later dates.

A potential signal for resuming the LPG flow in March was a Chinese importer that was heard to have withdrawn its offer for a 2H March cargo from the USGC resale market, which was heard still available in the market last week.

However, it remains to be seen if the latest announcement will steeply hike China's imports of U.S. LPG, as the ongoing COVID-19 coronavirus in China is expected to cap the overall LPG demand in the nation. Some diversions involving at least four LPG vessels were already heard for cargoes that initially scheduled for China delivery.

"China is diverting cargoes so demand doesn't look so hot, in theory it should support LPG prices but until this virus thing is resolved the impact will be weakened," said a source.

Edgar Ang, associate director, midstream oil and NGL at OPIS parent IHS Markit, had estimated China's February LPG demand reduction at 20% of 4 million-5 million tons, about 800,000 tons to 1 million tons.

Commenting on China's March demand, he added, "in theory, the Chinese going back to work after Lunar New Year holidays, so it should ramp up economic activity" while more updates on China's coronavirus situation will be required to estimate direction in the nation's LPG demand next month.

It is also worth mentioning that the latest announcement came as China is expected to boost its overall shipments of U.S. energy products as it has agreed to increase imports from the U.S to at least $30.1 billion in 2020 and $45.5 billion in 2021 under the trade deal signed Jan. 16. As such, further action from Beijing to comply with the trade deal was anticipated.

--Reporting by Charles Kim, ckim@opisnet.com

--Editing by Barbara Chuck, bchuck@opisnet.com

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Several Diesel Cargoes Spotted Heading To U.K. Port

February 18, 2020

Diesel imports into the port of Milford Haven in the U.K. are rising in advance of a reported turnaround at the nearby Pembroke refinery, data from the IHS Markit OPIS Tanker Tracker show.

The site at the former refinery at Milford Haven, bought by Puma Energy in 2015, is also used for oil storage.

A total of 362,000 metric tons of ultra low sulfur diesel (ULSD) is expected to arrive at the U.K. port over January and February.

That compares to 260,000 tons seen arriving in the same two months last year.

The Valero-operated 210,000-b/d Pembroke refinery has been reported going into maintenance between March and May.

Valero was not available for comment about first quarter maintenance at Pembroke.

Meanwhile, one diesel trader told OPIS that diesel cargo flows into the U.K. were higher than normal currently.

OPIS sources have suggested that the 220,000 b/d Humber refinery, owned by Phillips 66, will undertake maintenance later in the year, but other U.K. refineries have only light maintenance programs in 2020.

There will be no large-scale turnaround at the Essar-operated 200,000-b/d Stanlow refinery until February 2022, OPIS revealed earlier this year. Instead of a big turnaround, the refinery envisages a program of rolling unit shutdowns. Stanlow's hydrofluoric acid unit was due to come offline this month, while the sulfur recovery unit 3 is penciled in for maintenance in May.

Just two small February maintenance projects at ExxonMobil's 270,000 b/d Fawley plant have been scheduled, sources told OPIS at the start of the year.

The power needed to supply feed from the refinery to the chemical plant were due to undergo maintenance beginning on February 8, while maintenance at the resid hydrotreater, which converts heavy sulfur products into lighter ones, will begin on February 24, OPIS understands.

No big works at the Petroineos-operated 210,000 b/d Grangemouth refinery has been heard, although OPIS revealed last week that the petchem plant in Grangemouth will undertake a turnaround in April.

--Reporting by Anthony Lane, alane@opisnet.com
--Editing by Paddy Gourlay, pgourlay@opisnet.com

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Crude Flows Unabated Into China for Now, Run Cut Impact Likely in 2H March-April

February 17, 2020

Crude oil shipments into China are continuing at a brisk pace even as refiners cut back throughput and traders divert, where possible, unwanted cargoes.

There are, however, very early signs that fuel demand destruction may have bottomed as workers slowly get back to work having overcome travel restrictions and quarantines due to the Covid-19 coronavirus.

IHS Markit ship tracker, fixture and ship agent reports show a steady flow of crude oil into the main Chinese ports with many of these cargoes destined to independent (or tea pot) refineries, suggesting the availability of onshore storage space.

The voyage of many of the tankers, on the other hand, were not straight forward with many making changes to destination, undertaking ship-to-ship activities and even the odd absence of location transmissions as traders look to optimize in current difficult conditions, according to ship trackers and industry sources.

“Under the updated base-case scenario, we expect that Chinese refineries will need to deepen cuts to crude runs by as much as 3.5 million barrels per day (b/d) in February, 1.8 million b/d in March and 800,000-900,000 b/d in April from their original production targets before returning to normal operation rates in May and beyond,” the IHS Markit downstream team in Beijing said in a Feb. 14 report.

Consequently, this will reduce China’s annual crude demand growth to 125,000 b/d in 2020, just one-fifth of what was otherwise expected if there was no virus outbreak, according to the report. “Further cuts in our demand outlook cannot be ruled out at this point,” it said.

Despite the sharp drop in run cuts, crude oil imports into China in February have not dropped significantly, as shown in a ship agent report on Monday.

“There’s not much change to crude imports in February, the buyers have not much option but to let their vessels discharge. These cargoes were already booked and really close to arriving,” said Feng Xiaonan, IHS Markit downstream analyst in Beijing and one of the authors of the report.

“But everything is very sluggish in China in February. The largest bottleneck is the traffic ban. People can’t get out of their villages to get back to work,” Feng said, adding this was a huge impediment to industries getting back on their feet.

In the petrochemical sector, for example more than half of the manufacturers are still down with up to a third likely to remain shut or undertake maintenance works until further notice, she said.

Crude Oil Shipments to China

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Data from IHS Markit’s Commodities At Sea (CAS) shows a trend of declining crude oil shipments from the second week of March onward, which matches the views of trading sources.

Traders such as Unipec that have flexible barrels, i.e. term cargoes with no destination restrictions, have where possible re-sold these. Market sources said that a lot of these include Angolan and other sweet grades that were much needed in the Mediterranean following the prolonged halt to Libyan production that removed about 1 million b/d of output.

Even in the face of these cargo diversion, opportunistic spot buying has surfaced as differentials drop to multi-year lows.

Independent Chinese refiners were seen booking tankers to load Russian ESPO Blend cargoes for loading in late-February, fixture lists show.

“Yes, some are definitely bottom hunting, but generally buying is slow. ESPO premiums are very low,” said one crude source.

These actions also point to much uncertainties in the market where refiners in China are adjusting their planned run rates on an almost daily basis, leading to very nimble trades, market sources said.

For example, two tankers, the Universal Winner and the Aegean Dream, took almost identical moves of initially signaling a Chinese port as their destination before changing it midway through their journey and then reverting back to their original destination.

During their journey from Brazil, both tankers signaled Singapore areas as their final journey and reduced their draught signal temporarily while in the Straits of Malacca before taking bunker in Singapore and then heading to China fully laden.

The mystery of their maneuvers is compounded with a ship agent’s report that shows the Aegean Dream now discharging North Sea Forties crude, which suggests murky trades will feature greatly in these difficult conditions, the sources said.

In another case, IHS Markit ship tracker showed a VLCC, chartered by Unipec, diverting from its original voyage plan to China as listed on a fixture report.

The Xin Hui Yang picked up its cargo from Basra terminal on Jan. 29 and traversed the Arabian peninsula instead and was outside the Egyptian port of Ain Sukhna in the Red Sea on Feb. 9, data from the tracker show.

It stopped transmitting from Feb. 9-Feb. 13, and thereafter began a journey out of the Red Sea. One Feb. 15, about half-way in the Red Sea, it signaled a change in its draft to 11 meters from 20.5 meters and showed Singapore as its next destination.

This meant that the tanker had discharged its cargo, possible while near Ain Sukhna during the four days when it was not transmitting.


--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com

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Brazilian Ethanol Discharged at Selby Terminal; 1st Time in 4 Months

February 13, 2020

Deliveries of Brazilian fuel ethanol into NuStar Energy LP's Selby, Calif., fuel terminal have resumed -- nearly four months after a fire took the terminal out of operation in October 2019.

Explosions and a fire hit the terminal in the San Francisco Bay Area on Oct. Trading sources report that the terminal resumed operations on Feb. 4.

The terminal is a critical part of Brazil-to-U.S. ethanol flows since most imported Brazilian fuel ethanol goes either to the NuStar terminal or to Shell's Carson terminal in Southern California.

As reported by OPIS, the hobbled NuStar terminal impeded deliveries of Brazilian fuel ethanol into California as tankers carrying the fuel scrambled for other outlets.

"Vessels have actually been coming in for partial discharges and then going back out to anchorage awaiting open tank space to come back in," one market source told OPIS in early January, noting that parties were racking up considerable demurrage costs in the process.

The long wait is over, so to speak, with at least one vessel having discharged Brazilian ethanol at the terminal despite the facility reportedly offering just 800,000 bbl of storage, or just two-thirds of its former capacity (1.2 million bbl).

The Jag Punit tanker moored at the NuStar terminal on Feb. 4, according to IHS Markit's Market Intelligence Network (MINT) data.

The tanker had left Brazil last October loaded with a cargo of ethanol, according to ship brokers. The charterer was reported as Eco-Energy. The vessel reached the Port of Long Beach in Southern California last November and performed a partial discharge, according to MINT. Since late December, the tanker has been anchored in the San Francisco Bay.

The Jag Punit was not the only tanker impacted by the Selby accident. The Bow Cecil tanker has been anchored in the San Francisco Bay since December with a reported cargo of Brazilian ethanol which was loaded last November. Ship broker information lists Raízen as the tanker charterer.

Another cargo of ethanol is reported to be headed toward the Selby terminal aboard the Navig8 Aquamarine. The tanker left Brazil on Feb. 4 and is expected to be at the Panama Canal in seven days, MINT data shows. Trading sources expect the tanker to arrive at Selby in early March.

With Brazil's South Central sugarcane-growing region currently in its inter-harvest period, the Brazil-to-California ethanol arbitrage is technically closed. However, sources report that the ethanol volume aboard the Navig8 Aquamarine was purchased long before current market dynamics surfaced.


--Reporting by Brad Addington, baddington@opisnet.com

--Reporting by Eric Wieser, ewieser@opisnet.com

--Editing by Patrick Newkumet, pnewkumet@opisnet.com

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Cosco COAs Offer Unipec Timely Storage Options Amid China Demand Fallout

February 12, 2020

The timely return of once-sanctioned Very Large Crude Carriers (VLCCs) belonging to units of the Cosco shipping group has given China state-owned traders like Unipec greater flexibility in managing their supply risks, according to industry sources, tanker fixtures and ship tracking data.

Unipec, China's largest crude oil importer, started using Cosco tankers again after U.S. sanctions against the companies were lifted last month. Shipping fixtures released on Tuesday and Wednesday show at least eight VLCCs due to pick up cargoes from the Middle East in late February.

These tankers, which are on term contract with Unipec, could easily be used as floating storage should it become necessary, market sources said. They have mostly been drifting in Chinese waters since late October after the U.S. imposed sanctions on them for transporting Iranian oil, data from IHS Markit ship tracker show.

"The market is in contango now, but a pure storage play doesn't make sense. Unipec is doing storage, but purely as a defensive measure because they can't use the crude now," said one source.

Crude oil demand in China has tumbled because of the spreading Covid-19 coronavirus that has killed more than 1,000 people and infected over 42,000. It led to the lock down of cities and Hubei province leading to extensive demand destruction.

However, there are some signs that the epidemic may be nearing its peak as infection cases in China begin to stabilize.

"The market disturbance brought about by the coronavirus outbreak is still expected to reach and pass its peak in February, but a slower-than-expected recovery means the peak demand shock to all markets, oil included, will be much more acute than previously anticipated, said Feng Xiaonan, IHS Markit downstream analyst in Beijing.

"China will need to lower its crude imports by as much as 1.1 million barrels a day (b/d) on average over the course of the next four months in order to bring the country's crude supply and demand back to balance, representing an annual reduction of 300,000 b/d from our previous projection," the IHS Markit Beijing downstream team said in a Feb. 7 report.

Feng on Monday raised the reduction in crude imports to more than 1.5 million b/d on news of more refinery run cuts, which rose to an estimated more than 3 million b/d. This would translate into a runs decline of 2.3 million b/d from February 2019.

Unipec has also looked to re-sell cargoes on hand where possible, the market sources said. Unipec officials could not be reached for comment.

The trader has managed to place a couple of March loading Angolan cargoes into the European market, they said, adding that refiners there were starved of sweet grades following the Libyan shut-ins that closed about one million b/d of crude output.

Unipec was still heard offering at least three other Angolan cargoes including Saturno and Santos, the sources said.

At the same time, one VLCC chartered by Unipec that was supposed to be heading to China, according to a fixture report, diverted from its original voyage plan.

The Xin Hui Yang picked up its cargo from Basra terminal on Jan. 29 and traversed the Arabian peninsula instead and was outside the Egyptian port of Ain Sukhna in the Red Sea on Feb. 9, data from the IHS Markit ship tracker showed. The tanker has since then stopped transmitting its whereabouts.

--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com

Copyright, Oil Price Information Service

China Refinery Run Cuts Deepen Further as Crude Cargoes Are Resold

February 10, 2020

Chinese refiners are scaling back crude runs significantly in the face of brimming oil product storage tanks, but for now, there have been no turning away or declaration of force majeure on crude deliveries following the coronavirus outbreak, industry sources said.

Refiners have in the first instance stopped incremental spot crude purchases, looked for alternative outlets for term barrels and finally begun negotiations with long-term suppliers in the Middle East to reduce prompt shipments, the sources said.

“We won’t see a drastic drop in February/March deliveries as a lot of these were pre-booked and already on the waters. There will be a significant drop in April,” said Feng Xiaonan, IHS Markit downstream analyst in Beijing.

Citing a highly fluid situation in China, Feng said refiners are making throughput decisions on an almost daily basis as demand crumbled in the wake of draconian actions by the authorities to stem the spreading of the virus, including placing an entire province in lockdown.

“Cross-province travel is low because of all the restrictions. This has led to staff not getting to their workplaces on time in some cases, and also to severely curb transportation fuel demand,” Feng said.

Typically, refiners keep storage tanks for crude that could last for months but for the refined products, it usually only amounts to days as these are quickly shipped out once they are produced, she said. Even the crude tanks are brimming because of large purchases throughout last year, Feng added.

Consequently, in the aftermath of a huge drop in domestic demand, which IHS Markit estimates at 40% in February for transportation fuels, refiners have no choice but to reduce their throughput. 

Feng now estimates the cuts to have risen to more than 3 million barrels a day (b/d) from their original February targets, compared with a forecast of 2.3 million b/d made in an IHS Markit report on Feb. 7. This would translate to a runs decline of a similar 2.3 million b/d from February 2019.

“China will need to lower its crude imports by as much as 1.1 million b/d on average over the course of next four months in order to bring the country’s crude supply and demand back into balance, representing an annual reduction of 300,000 b/d from our previous projection,” the IHS Markit Beijing downstream team said in the report.

The reduction in crude imports is now raised to more than 1.5 million b/d over the next four months, Feng said, based on latest information on refinery run cuts.

Industry sources said the nation’s biggest trader, Unipec, was already in the market re-selling crude cargoes where possible, amid talks that the outage of about 1 million b/d in Libya had made it relatively easier for the company to find outlets for surplus West African sweet grades.

Term producers such as Saudi Aramco have cut back term crude volumes in the face of the sudden sharp drop in refinery runs and near tank-top conditions, they said.

Saudi Arabia In-Transit Crude Oil Shipments to China

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According to data from IHS Markit’s Commodities At Sea (CAS), flows for arrival to China in early March from Saudi Arabia have slowed in the past few days.

Deliveries for arrival from March 2-9 average about 2 million bbls per day with no daily shipments reaching 4 million bbls or 6 million bbls seen for many days in February and March, the data show.

The consistently low level of deliveries for the later days ties in with sources reporting of Aramco reducing their term volumes but this could not be confirmed.


--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com

Copyright, Oil Price Information Service 

Shell Confirms Pernis Turnaround

February 6, 2020

The Shell-operated 404,000 b/d Pernis refinery in Rotterdam will undertake a turnaround in early May, the company confirmed to OPIS today.

OPIS reported earlier this week that maintenance workers were being recruited for work beginning in April, with sources referring to a turnaround.

However, the extent of the maintenance work was not revealed.

Asked whether a turnaround was coming in April, a spokesman for Shell said:

"Yes, maintenance activities at Shell Pernis take place at Pernis constantly. The next turnaround will start early May. We won't provide further details."


--Reporting by Anthony Lane, alane@opisnet.com

--Editing by Paddy Gourlay, pgourlay@opisnet.com

Copyright, Oil Price Information Service

Oil Demand Destruction Sends Tanker Rates Tumbling, Virus Clause Emerges

February 6, 2020

The shipping industry is bracing for tougher times as oil flows grind down in the face of shrinking demand in China due to the coronavirus even as tanker owners look to add a virus clause similar to that seen after the Ebola outbreak in 2014-15, sources said.

Shipping sources said that the coronavirus clause will call for charterers to pay for the extra costs brought about by the epidemic in terms of demurrage due to quarantine or additional operational costs incurred from compliance with new virus-related guidelines.

"I heard charterers have accepted this, they don't have a choice as owners are already putting this clause in new contracts," said one ship broker.

The quarantine that's increasingly being placed on tankers that have called in China or have crew from that nation as a precaution to curb the spread of the virus could lead to a temporary shortage of vessels, especially on short-haul regional routes, they said. The new coronavirus has so far killed 563 and infected over 28,000 people.

"In the short-term vessel availability will be affected but the shipping industry has a way of overcoming this. The big issue, however, is the huge drop in demand from China," said Rahul Kapoor, vice president for maritime and trade at IHS Markit in Singapore.

"The overall demand is so negative that it will outweigh any positives," he said, adding that the re-entry of vessels after U.S. sanctions against two units of Chinese shipper Cosco was lifted will increase availability in the tanker pool.

Chinese fuel demand is expected to drop by 1.4 million barrels a day (b/d) from a year ago, according to IHS Markit estimates made in its Oil Market Briefing on Tuesday.

"A temporary decline of 3 million b/d in world oil demand for a month or more cannot be ruled out at this stage given uncertainty about containing the outbreak," IHS Markit said in the report, with run cuts in February estimated at 2.1 million b/d.

Independent refiners in China have stopped making fresh crude oil orders as they are struggling to sell oil products that are already in their tanks, traders said. This high inventory situation has triggered drastic run cuts atthe worst hit refiners, they added.

 Crude Oil Bound for China

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According to IHS Markit's Commodities at Sea ship tracking service there are 313 million bbls of crude oil on board tankers heading for China.

Of this volume, 203 million bbls, or 7 million b/d, are due to arrive in February with another 84 million bbls due in March.

So far none of these crude oil that are on the waters have been canceled under a force majeure clause but some Chinese traders are looking for alternative homes if the economics work, the market sources said.

Traders are also exploring the possibility of keeping these supplies in storage as part of a contango play, they said.

Tankers rates are continuing their downtrend even after news of the 14-day quarantine by some nations against vessels leaving from China, which has yet to make an impact, ship brokers said.

"It's a bit like a double-edged sword but at the moment freight rates are still coming down," the ship broker said, pointing to an overnight fixture for a Suezmax from Kozmino to north China that was booked at $600,000, down $130,000 from the previous charter a day ago.

Rates on other routes are also extending their falls, some close to multi-year lows.

Very large crude carrier (VLCC) rates on the busy Middle East Gulf to China route (TD3C) fell by 1.21 Worldscale (WS) points on Tuesday to WS 43.04, which worked out to time charter equivalent (TCE) of $16,865 per day, according to data from the Baltic exchange.

Freight on this route jumped to WS 313.33 points on Oct. 11 at the height of the Cosco crisis.

Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

Editing by Sok Peng Chua, SokPeng.Chua@ihsmarkit.com

Copyright, Oil Price Information Service


Ningbo Port Delays Berthing, Discharge as Suspect Crew Are Tested for Coronavirus

February 5, 2020

A mandate for ports in China to quarantine vessels with crew suspected of carrying the new coronavirus was put into practice at Ningbo after a liquefied petroleum gas (LPG) carrier was held up for four days before it was allowed to berth.

The Ningbo Maritime Board requested the vessel to remain at sea until the two-week incubation period was over before allowing it to discharge its cargo, market sources said, adding that the owner was expected to bear the extra costs incurred.

The LPG carrier Pacific Yantai was asked to drift outside the northeastern Chinese port for an additional four days to take its overall journey time beyond the 14-day coronavirus incubation period before entering Ningbo port, market sources said.

The delay to discharge and the two-week wait could tighten freight availability and eventually raise shipping rates if more cases of the virus among ship crew members emerge, said market contacts.

The crew member boarded the vessel on Jan. 21 on route to China from the Middle East while it was bunkering, they said.

Data from IHS Markit's MINT ship tracker showed the Pacific Yantai undertaking bunkering on Jan. 21 in waters off Singapore and staying outside Ningbo from Jan. 28-Feb. 2 before entering the port to discharge its cargo. The tanker left on Feb. 4, signaling Zhangjiagang as its next destination.

The crew member was cleared of virus infections, according to sources.

The Singapore Maritime Port Authority (MPA) did not reply to an e-mail seeking clarification on the crew member.

MPA requires all arriving vessels that have called at ports in mainland China or with crews who have traveled to mainland China in the past 14 days to submit a Maritime Declaration of Health Form from Feb. 1, according to a circular issued on Feb. 1.

More stringent controls should be taken by regional port operators and shipping companies; however, ports are prohibited from rejecting port calls and isolate anchorages as a means to prevent the epidemic from spreading without valid rationale, China's Ministry of Transport said in a notice issued on Jan. 30.

Crew members are not allowed to leave the ship without special circumstances, the ministry said.

Maritime authorities in other countries have also imposed similar 14-day quarantine rules. However, traders pointed out that most voyages including from the oil-rich Middle East to China takes about 20 days.

Australia for example will quarantine vessels that have left mainland China on or after Feb. 1 until the 14-day period passes, according to one shipping notice.

Aside from the suspected LPG carrier, two more similar cases were reported wherein crew members showed symptoms of fever before arrival since Jan. 22, according to Ningbo Zhoushan Port Co.

The petrochemical carrier Sea Smart was told to postpone its discharge by one day to Jan. 24, allowing test to be carried out on one suspected crew which was negative, Ningbo Port said.

The dry bulk carrier Endeavour halted its discharged on Jan. 24 due to bad weather while two crewmembers were put in isolation and tested, which was also negative, they added.


--Reporting by Lujia Wang, Lujia.Wang@ihsmarkit.com

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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Crude Oil Contango Storage Play May Return on Low Freight, China Demand Drop

February 5, 2020

Crude oil players are gearing up for a potential storage play on the back of the current coronavirus-triggered weakness that has seen demand in China plunge and push the key Brent market into contango, industry sources said.

The decline in China's oil demand, estimated at 1.4 million barrels a day (b/d) from a year ago by IHS Markit, has led to a slowdown in spot crude purchases from incremental supply sources such as the North Sea, Brazil, Baltic and West Africa with buyers taking minimum term contractual volumes, they said.

The downward pressure on prices has flipped crude benchmarks such as Brent and West Texas Intermediate into contango. At the same time, the steep decline in freight rates, itself a consequence of the sharp drop in oil shipments, has opened up the prospect of oil being stored on-board tankers.

"Traders are watching the price curves closely, right now the front months have flipped into contango and the spread is still small, it's not enough to pay for storage and other costs," said one crude trading source.

But the current low freight rates may entice players to put tankers on subject, with a view to fixing the booking in the coming days if the contango widens, the trader said.

In the forward paper market, the Brent March/April time spread was at minus $0.12/bbl in contango while March/April Dubai was still in backwardation, albeit at a small plus $0.14/bbl, data from brokers show.

"The Atlantic Basin Brent-related crudes will be under pressure because of this drop in China demand," said Premasish Das, IHS Markit's research & analysis director in Singapore.

Describing the demand destruction in China as the "biggest negative oil demand shock since the Great Recession of 2009" in a report released on Tuesday, IHS Markit said the demand shock will have repercussions elsewhere in Asia and the world.

China, which has since the SARS epidemic of 2003 grown to become the world's largest oil importer, has put in place unprecedented levels of quarantines and restrictions on travel and commerce, it said.

"A temporary decline of 3 million b/d in world oil demand for a month or more cannot be ruled out at this stage given uncertainty about containing the outbreak," IHS Markit said in the Oil Market Briefing that was co-authored by Das.

IHS Markit expects refiners in China to cut runs drastically in February, amounting to 2.1 million b/d or about 28% of current crude throughput of around 13-14 million b/d. Refiners elsewhere in northeast Asia, including Taiwan, have also reduced throughput.

Crude oil sources said that cargoes that China refiners buy on spot basis including Russian Baltic Urals, North Sea Forties and Johan Sverdrup, Brazilian Lula and various West African, mostly Angolan, grades are likely to be among the first to be affected.

Holders of term Angolan crude cargoes were already heard offering these March loading barrels to other markets instead of taking them back to China as is usually the case, the sources said.

Freight rates have been declining over the past month as the coronavirus put a brake on oil flows on both the buy and sell side.

Very large crude carrier (VLCC) rates on the busy Middle East Gulf to China route (TD3C) fell by 8.17 Worldscale (WS) points on Tuesday to WS 44.25, which worked out to time charter equivalent (TCE) of $18,166 per day, according to data from the Baltic exchange.

The rates are the lowest since July 2019. Freight jumped to WS 313.33 points on Oct. 11 at the height of the Cosco crisis.

Based on the TCE rate as per the TD3C route above, the cost of having a VLCC on the waters for one month will work out about $0.27/bbl, which is not very faraway from the latest contango seen in the forward markets, traders said.

However, for a contango play to be profitable the price gap will also need to cover other financial and miscellaneous costs, which would add a few cents per barrel to the equation, they said.

Alternatively, players could request VLCCs plying long-haul voyages such as the North Sea or U.S. Gulf Coast (USGC) to East Asia, which take about 50 days, to travel at a lower speed and pay the extra shipping costs, the sources said.

The cost of shipping crude on a VLCC from USGC to South Korea has shrunk to $7.8 million while the voyage to Singapore was priced at $6 million, according to a shipping fixture released on Wednesday.

VLCC freight rates on the USGC-China/South Korea route soared to as much as $23.6 million in October at the height of the U.S. sanctions against six Chinese shippers including two Cosco units, fixture lists showed.

"Freight is extremely cheap now, we should start to see floaters carrying crude oil very soon," the trader


--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com 

--Editing by Trisha Huang, Trisha.Huang@ihsmarkit.com and Sok Peng Chua, SokPeng.Chua@ihsmarkit.com


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Corpus Christi EPIC Terminal Seen Shipping Crude to US, Europe

February 4, 2020

The EPIC Midstream Oil Export Terminal has moved several cargoes of crude oil since becoming operational at the beginning of December, but it is too early to speculate about a steady destination for the Texas product, according to IHS Markit's Market Intelligence Network (MINT) data.

Combined, the vessel cargoes potentially represent about 4.9 million bbl of crude being moved out of the Corpus Christi port if the tankers are fully loaded.

The first cargo to load at the newly operational terminal was on the Eser K tanker, EPIC Midstream confirmed last year. MINT data shows the tanker carried the cargo to the Milford Haven Valero terminal in Wales.

A second cargo was picked up by the Aries Sun in mid-December and headed to the Europort in Rotterdam. The next couple of cargoes traveled to a nearby U.S. Gulf port and Come-by-Chance in Canada.

The EPIC Midstream terminal is located on the former site of the International Grain Terminal in Corpus Christi, Texas. The facility has a max load rate of 20,000 barrels per hour.

EPIC Midstream operates the Y-Grade pipeline, which came online in August 2019 with interim crude delivery from Crane, Texas. The company's crude oil pipeline from Orla, Texas, to Corpus Christi is scheduled to be completed in first quarter this year and have an initial capacity of 600,000 b/d.

The Port of Corpus Christi finished the year 2019 with record tonnage during the month of December as well as record tonnage for the entire year. The port operator attributed the record results to the new crude pipelines feeding the port.

Looking at cargoes this month, the latest one was picked up by the Eagle Turin tanker, which loaded at the EPIC Midstream terminal Feb. 1 and then headed to the U.S. Gulf lightering region. The vessel performed a ship-to-ship activity Feb. 2-3 for 23 hours with the Olympic Trust tanker, according to MINT.

The Olympic Trust tanker has been chartered by Vitol to take the lightering cargo on the long journey to Singapore, according to shipbroker reports.


--Reporting by Eric Wieser, eric.wieser@ihsmarkit.com

--Editing by Rob Sheridan, rob.sheridan@ihsmarkit.com

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