China’s changing appetite for Heavy Sweet, shifting LSFO flows and what they reveal about refinery priorities across Asia.
Drawing conclusions from crude is no easy task. The market is bruised, confused and now sitting in contango.
Approaching it instead through the lens of Fuel Oil and feedstocks sheds a little more macro light.
| Arrival | Vessel | Qty | Cargo | Laydays | Load Port | Rate | Charterer / Port (Receiver) |
|---|---|---|---|---|---|---|---|
| DISCHARGED | NEW JOURNEY | 2.0MB | H.SWEET | 30-01/06 | ANGOLA | COA | UNIPEC – BALIKPAPAN (PERTAMINA) |
| 14 JULY | YUAN SHAN HU | 2.0MB | H.SWEET | 17-19/06 | ANGOLA | COA | UNIPEC – CILACAP (PERTAMINA) |
These cargoes are normally a staple of the Chinese refining slate and contribute towards producing domestic 0.5% fuel oil for their bonded bunker market.
With Unipec now diverting them to Pertamina, it raises an interesting question. During a refinery slowdown, is producing domestic 0.5% no longer a priority?
This shift has encouraged equity holders in Angola, including ENI, Exxon and Total, to refine more Angolan Heavy Sweet in Europe before exporting the resulting LSFO back to the East.
The economics also suggest this is not purely a margin-driven trade. Evidence of this can be seen in the 1.0MB Kraken cargo from the UK, Beijing Spirit, being placed on the arbitrage to the East, implying margins in Europe are no more attractive than those available in Asia.
| Arrival | Vessel | Qty | Cargo | Laydays | Load Port | Rate | Charterer |
|---|---|---|---|---|---|---|---|
| DISCHARGED | CAPE TAURA | 65 | LSFO | 26-28/05 | AOSHAN | RNR | CHIMBUSCO – SINGAPORE |
| DISCHARGED | LEYTE SPIRIT | 100 | LSFO | 07-09/06 | ZHOUSHAN | RNR | CHIMBUSCO – SINGAPORE |
| 06 JULY | BEI HAI FENG HUANG | 53 | LSFO | 27-29/06 | ZHOUSHAN | COA | CHIMBUSCO – SINGAPORE |
| 11 JULY | PM MONARCH | 95 | LSFO | 30-02/07 | ZHOUSHAN | RNR | CHIMBUSCO – T.PELEPAS |
LSFO is normally subject to export restrictions from mainland China, making these cargoes noteworthy.
The implication is straightforward: they appear to have more LSFO than they currently require.
| Arrival | Vessel | Qty | Cargo | Laydays | Load Port | Rate | Charterer |
|---|---|---|---|---|---|---|---|
| ANCHOR | ATLANTIC GOLD | 90 | LSFO | 01-03/07 | JAPAN | RNR | ENEOS – ZHOUSHAN |
| 08 JULY | BEI HAI QI LIN | 60 | LSFO | 02-04/07 | JAPAN | RNR | ENEOS – ZHOUSHAN |
At the same time, China is importing almost identical specification LSFO into the very port from which it is exporting its own product.
Then there is WTI.
Every WTI cargo lifted by the Chinese and placed onto the arbitrage has gone to Japan. That in itself is nothing unusual.
China participates actively in US crude markets, but buying and consuming are not necessarily the same thing. It may simply be another mechanism for shedding US dollars while accumulating relatively cheap Japanese Yen.
China has also signalled to Japan that it is comfortable allowing them to lift Iranian crude under the current sanctions waiver.
It may seem that there is considerable ambiguity coming out of China.
What is becoming increasingly clear, however, is that they have cracked the Trump code.
