China seen importing record volumes of North Sea crude in March - S&P Global

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Highlights

More than 1 million b/d of North Sea crudes have arrived in March

But demand likely to slow from April as refineries go into maintenance

China is the largest buyer of Norway's Johan Sverdrup crude

London — China's deliveries of North Sea crude are expected to hit a record this month, helping to offset tepid demand from European markets that remain subdued by COVID-19 lockdowns, according to market sources and an S&P Global Platts analysis of shipping data.

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The world's largest importer of oil is expected to receive almost 1.2 million b/d of medium gravity crude from the North Sea in March, up from around 540,000 b/d a year earlier, data from intelligence firm Kpler shows.

The bulk of these shipments -- which now account for about a tenth of total imports -- includes cargoes of UK's Forties and Norway's Johan Sverdrup, both fitting the preferred diets of China's industrial refineries. China also imported some cargoes of Ekofisk and Grane in March, according to trading sources.

The March surge in North Sea cargoes -- a record based on Kpler data back to 2012 -- underscores the growing influence of Beijing in the ageing basin's future. Over the last decade, Unipec -- the trading arm of state-owned Sinopec -- has also emerged as a key player in the North Sea spot crude market.

China has imported around 668,000 b/d of crude from this region so far in 2021, compared to 357,000 b/d for the whole of 2020 and 254,000 b/d in 2019, the Kpler data shows. In 2013, China only imported 37,000 b/d of North Sea crude.

In January, Unipec bought eight North Sea cargoes totaling 4.8 million barrels in the S&P Global Platts Market on Close Assessment process. It was the largest buyer that month in the Platts MOC, according to data. Since then, Unipec has slowed its MOC purchases, only buying a single 600,000-barrel cargo.

Bet on recovery

However, the flood of North Sea crude heading East could be short lived. China's imports of North Sea oil are expected to fall from April onwards, as its refineries move into turnaround season, market sources said.

Sellers of North Sea crudes hoped that once the bulk of refinery works were finished in May, crude arriving during the period would see more demand.

"Many companies positioned themselves to deliver May cargoes into China, betting on a demand recovery after the holidays ... that is not happening," one trader said.

The recent strength in Dated Brent, along with a stronger backwardation, may have also discouraged some long-haul flows into Asia.

Meanwhile, European demand for North Sea grades has picked up amid improving margins, but demand from Asia has dipped for March and April loading barrels because of upcoming refinery maintenance.

The ability to arbitrage European crude out of the region has been weighed down by rising freight costs and a backwardated oil market structure, sources said.

"Structure and freight are suppressing margins and, therefore, demand and crude differentials," said a crude oil trader.

Refiners have been motivated to draw from storage, and with healthy crude inventories in China, there have been fewer North Sea-China fixtures for the coming weeks.

"East of Suez refiners will have to rely more on short-haul crudes from Middle East and Russia. Without increases in Middle East supply on OPEC+ deal, Asian refineries will be forced to bid up price," Platts Analytics said in a recent note.

Johan Sverdrup

Major oil trading houses Vitol, Trafigura, Glencore and Mercuria along with the trading arms of BP, Total and Equinor, have been among the most active fixing super tankers on this route from the North Sea to China.

By taking advantage of arbitrage economics and cheaper freight that has been in place over the past few months these traders have looked to send grades such as Forties, Johan Sverdrup, Oseberg and Brent Blend to China in greater volumes.

This trend has been supported by China's appetite for Norwegian crude, driven mainly by the startup of the Johan Sverdrup oil field.

Discovered by Lundin in 2010 and operated by state-controlled Equinor, Johan Sverdrup came on stream in late-2019 and has helped revived Norwegian oil production levels.

China is the largest buyer of this crude grade, buying more than 50% of total export volumes every month.

In 2020, Johan Sverdrup crude exports averaged 417,000 b/d, and 210,000 b/d of this sailed to China, Kpler data shows.

Johan Sverdrup crude is heavier than North Sea grades such as Brent, but has become a popular feedstock for Chinese independent refineries.

China has also increased its presence in North Sea upstream. China's CNOOC operates UK's highest-producing oil field Buzzard, which is a mainstay of the UK's Forties crude production.

The Link Lonk


March 22, 2021 at 11:01PM
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China seen importing record volumes of North Sea crude in March - S&P Global

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