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Emerging from the coronavirus lockdown, China’s oil refiners are buying ultra-cheap spot cargoes from Alaska, Canada, and Brazil, taking advantage of the deep discounts at which many crude grades are being offered to China with non-existent demand elsewhere.
The discounts of spot cargoes of Canada’s Cold Lake blend, Alaska North Slope, and Brazil’s Lula grades vary between $5 and $9 a barrel to Brent, traders in Asia told Bloomberg on Friday.
China’s refiners are said to be pretty much the only buyers of spot crude right now, as both state-owned corporations and independent refiners—commonly known as ‘teapots’ – are taking advantage of the cheapest oil in years to stock up on crude worth $15 a barrel or less.
Independent refiners bought spot cargoes of Cold Lake from a European trader at a discount of $8-$9 a barrel to Brent, while Alaska North Slope and Brazilian grades have been sold at a $5.50-$6 per barrel discount to the international benchmark price.
Refiners in China kept their processing rates low in March, because of the slump in local demand due to the pandemic and the lockdowns. Still, signs point to some recovery after the end of the lockdown in China, at least in demand for ultra-cheap crude for April and May.
Refinery runs in China hit their lowest in 15 months in March, according to data from China’s statistics bureau on Friday, compiled by Reuters.
China-based analysts told Reuters that toward the end of March, refiners started to recover some of the utilization rates at refineries with fuel demand rising from earlier this year when China was the hotspot of the pandemic.
In March, China’s crude oil imports rose by 4.5 percent on the year, but dropped compared to January-February. However, independent refiners began ramping up bookings for crude arrivals in March and April as early as at the end of February.
Import in April and May are expected to rise from the March levels as demand is slowly returning, and refiners are looking to buy ultra-cheap oil, Li Yan, senior analyst at Longzhong Information Group, told Reuters.
