Surge in U.S. oil flows to China may curtail Middle East shipments
(Reuters) - China's imports of U.S. oil are expected to rise to a 20-month high in September and may increase more in November as refiners take advantage of lower prices amid a surge in U.S. exports from rising output and stockpile releases.
The United States is gaining market share in the world's biggest oil importer in another sign of how crude trade flows are shifting in the wake of Russia's invasion of Ukraine, which spurred the stockpile release and higher output. The increasing U.S. flows may eat into demand for other similar light crude grades from the Middle East, such as Murban from Abu Dhabi.
At least 14 tankers carrying a total of 1.51 MMt, or 11 MM barrels, of U.S. crude are forecast to discharge at Chinese ports in September and 8.82 million barrels to arrive in October, estimates from Refinitiv showed. That would be the highest since January 2021 when 1.98 MMt arrived.
"The Chinese increased U.S. crude purchases as the arbitrage window finally opened," said a Singapore-based trader associated with a Chinese firm.
Rising U.S. supplies caused the discount between U.S. West Texas Intermediate crude and Middle East benchmark Dubai to widen to $10.72 a barrel in late August, Refinitiv data showed, the most since March 9, not long after the Ukraine war started on Feb. 24. China's state-owned refiners, such as Sinopec, are leading the purchases of U.S. crude, said three Singapore-based traders.
Sinopec did not immediately respond to a request for comment.
Some of the cargoes moving to China are from releases out of the U.S. Strategic Petroleum Reserve (SPR) to counter rising prices after the start of the war which also prompted output increases.
The surging U.S. shipments pushed freight rates for Very Large Crude Carriers (VLCC) on the U.S. Gulf to China route to $9 million per charter at the end of August, the highest since May 2020, according to data from shipbrokers Simpson Spence Young.
U.S. imports slumped to a 27-month-low in July at 128,527 tons, or 938,247 barrels, according to Chinese customs data, after the Ukraine crisis and post-pandemic recovery boosted demand in the west and made arbitrage supplies uneconomical for Chinese refiners.
However, with the arbitrage now open more U.S. crude should flow impacting the shipments of more traditional supplies from the Middle East.
"There will also be more U.S. crude coming in November, because of the record amount of SPR release and poor Europe demand. All those surplus cargoes are pushed to Asia and pressured regional crude Murban in the recent trading cycle," said a Singapore-based trader.
Spot premiums for Murban averaged $6.10 a barrel against Dubai quotes in August, plunging from $11.30 a barrel in July, according to Reuters calculations.
Despite the increase of U.S. shipments, China's total crude imports may further dip in September, analysts said, as Beijing's persistent zero-COVID policy dampens fuel consumption.
An ongoing tax probe on independent refiners in Shandong, whose combined refining capacity accounts for a fifth of China's total, may also cap their crude purchases.
Operating rates at these refineries have dropped to 60% in late August from about 70% in mid-July, according to energy consultancy Zhuochuang.
"Refining rates could further drop in the coming months as the tax probe continues and the Communist Party Congress takes place in mid-October," said a China-based trader.
(Reporting by Muyu Xu; Editing by Florence Tan and Christian Schmollinger)
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