Argus Live: Chinese, Indian refiners spoiled for choice

Asia-Pacific refiners are not facing any shortages of sour crude as they diversify import sources, despite the Opec+ output restraint agreement crimping supply, participants at the Argus Crude Live virtual conference said today.

Most Asian refiners have term contracts with Opec suppliers. The output cuts are affecting these buyers, but the narrow Brent/Dubai differential and lower demand in regions such as Europe means they still have multiple supply options thanks to arbitrage arrivals into Asia-Pacific, one speaker said. The conference discussion was held under Chatham House rules, which prohibit media from quoting participants.

More diverse grades have started to flow into India. One refiner has started taking crude from the US, Latin America, west Africa and the Mediterranean, with sour grades like Urals, CPC, WTI and Mars becoming increasingly competitive in its system and even replacing conventional grades, so reducing its dependence on Middle East supplies.

"Refiners are also open to trying new grades, which they were not ready to earlier, because of low prevailing margins in the current market," one speaker said.

In China, both state-controlled and independent refiners are looking to increase purchases from the Mediterranean, the North Sea and Latin America amid declining west African supplies, with Angolan and Nigerian production having fallen in recent years.

Russia's ESPO Blend and Middle East Oman crude have typically been the grades of choice for Chinese independent refiners. But buyers had a diverse range of crude offers as prices fell last year. "We saw esoteric North Sea grades going to places like Shandong, like Flotta Gold, which you do not often see on spot market in northwest Europe, let alone pitching up in northeast China," said one delegate.

Independent refiners in Shandong province have overwhelmingly come to favour Brazil's Tupi grade — formerly known as Lula — and North Sea Johan Sverdrup crude this year. These refiners are buying about 500,000 b/d of Tupi and around 200,000-400,000 b/d of Johan Sverdrup, with consistently high volumes of trades in those two grades, the delegate added.

The independents accounted for about 3mn b/d or nearly a third of China's total crude imports in 2020.

By Yvette Choo