June 16, 2017 3:37 pm JST
Commodities eye

China buying more oil from US, North Sea

OPEC output cut leaves Middle Eastern crude at a disadvantage

AKANE TAMURA, Nikkei staff writer

Oil tanks are seen at a Sinopec plant in Hefei, Anhui province. © Reuters

TOKYO -- Chinese imports of American and North Sea oil increased noticeably in the January-April period, jolting Middle Eastern suppliers like Saudi Arabia Oil, also known as Saudi Aramco.

China imported 1.21 million tons of crude from the U.S. in the first four months of the year, compared with 30,000 tons in the same period a year earlier. Imports from Britain, which controls a portion of North Sea output, jumped 240% to 2.99 million tons.

Imports from Brazil and Argentina increased as well.

The shift in China's habits is attributable to the narrowing gap between crude prices in the Middle East and other markets, following an OPEC output reduction in January.

Brent crude from the North Sea and U.S. oil have relatively low density and are low on sulfur. Since more gasoline and light oil can be produced from the same amount of oil, these varieties are typically more expensive than Middle Eastern crude, which is denser and contains more sulfur.

But since OPEC's cut, the price of Dubai crude has surpassed the West Texas Intermediate futures price. The U.S. benchmark was $2.60 higher than Dubai crude, on average, in the first four months of 2016. The benchmarks traded places in the same period this year, with Dubai crude priced $1.09 higher.

Meanwhile, independent Chinese refiners known as "teapots" were actively buying South American crude. Imports from Brazil were likely purchased on long-term contracts, according to Mika Takehara, a senior researcher at Japan Oil, Gas and Metals National Corp., or Jogmec.

In response to the increased flow of North American and North Sea oil into Asia, Saudi Aramco in early March cut the April price of Arab Light, its main grade, for Asian customers. The Saudi state oil company shaved 30 cents off the price of a barrel.

A Japanese oil company insider said the larger-than-expected price reduction was Saudi Arabia's attempt to maintain its Asian market share. Saudi Aramco also cut the price for the next two consecutive months.

China's share of Saudi Arabia's oil exports decreased 1.2 percentage points on the year in the January-April period, to 13.2%.

OPEC plans to maintain its reduced output until March 2018. But as long as prices limit the competitiveness of Middle Eastern oil, China -- the world's second-largest consumer -- is likely to look elsewhere.

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