China buys cheap Urals on decline in demand in Europe due to coronavirus
US, WASHINGTON (ORDO NEWS) — Chinese companies seize the moment and buy large volumes of cheaper Russian Urals oil, while the demand for raw materials has weakened in the European market due to the coronavirus pandemic, according to Reuters and trade sources.
China‘s Unipec, a trading division of Sinopec, acquired about 800,000 tons of Urals with transshipment in the Baltic at the end of March and about 500,000 tons with shipment in early April. Unipec loads volumes onto VLCC supertankers offshore Denmark and ships them to China, traders said.
Another VLCC with 300,000 tons of Urals on board with shipping in early April plans to ship Shell to China, market participants say.
Traders say they receive requests for possible supplies of Urals from several more processors from China, but refuse to clarify the names of companies, citing confidentiality of negotiations.
Sinopec did not respond to Reuters request for comment. Shell usually does not comment on its trading operations.
DISCOUNT ON DISCOUNT
The arbitrage window for Urals shipments to Asia for shipments in April remains open amid weakening European Brent marker against Asian Dubai and contango in the oil market.
The Brent discount for Dubai on Wednesday reached its all-time record of minus $ 4.55 per barrel, while Brent usually trades at a premium for Dubai.
At the same time, Urals shipments from Baltic ports are priced at a discount of about $ 3.50 per barrel to the North Sea standard, which makes the price of the Russian grade relative to Dubai very attractive for buyers in Asia.
In addition, freight rates fell after a record jump, which further supports the economy of arbitrage deliveries, traders said.
BRIGHT FUTURE
The situation of contango in the market (excess of quotes of deferred batches over the cost of volumes with close shipment dates) provides additional efficiency in oil supplies from Europe to Asia, industry sources say.
So, the oil delivery time is about one and a half to two months, and lots with earlier dates are cheaper.
“Arbitration from Europe to Asia is open. For Chinese companies, buying Urals now makes sense. A long delivery period is beneficial due to contango, and also taking into account the hopes of traders to restore demand closer to the summer, ”said one source.
In addition, traders note that the demand for Urals among Chinese refineries can be explained by the high percentage of diesel fuel produced from the Russian grade. According to them, diesel crackers in China have fallen not as much as gasoline ones, and by summer they can recover faster with increasing seasonal consumption.
“Gasoline (oil) grades are now in very poor condition, but diesel grades are nothing. If you believe in a bright future, then by June, Chinese consumers can greatly win by purchasing Urals at the lowest prices now, ”said a source in a trading company that works with a Chinese refinery.
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