04 Feb 2020 | 08:49 UTC — Dubai

Oman oil minister expects traders to divert crude if China demand slows

Highlights

China refiners poised to cut crude imports, throughput on virus

Thailand, Taiwan no more listed as major buyers of Oman crude

Japan, South Korea, India, China among top buyers lately

Dubai — Oman, the biggest oil producer in the Middle East outside OPEC, expects traders to divert sales of the country's crude to other destinations if there is a slowdown in demand from China, its biggest customer, as the coronavirus outbreak hampers Chinese growth, the Gulf state's oil and gas minister said on Tuesday.

"We sell most of our export to traders, even refineries tend to trade too," Mohammed al-Rumhy told S&P Global Platts when asked what Oman intends to do if China's demand slows. "They normally sell to China and I expect them now to divert some volume to other destinations which we don't restrict."

Oman is the most exposed Middle Eastern oil producer to China's crude demand, with sometimes more than 90% of its monthly sales going to the Asian buyer, which is now grappling with economic slowdown from the deadly coronavirus.

Values for Platts Oman remained above Platts Dubai in January amid steady demand from China. Platts Oman averaged $64.696/b for the month against Platts Dubai average of $64.286/b. Crude traders reported Tuesday that refineries in China were cutting runs as a result of falling product margins, such as those for naphtha, gasoline and middle distillates. Traders also reported seeing prompt February loading and March loading cargoes being resold in China, which is likely to add pressure to Middle East crude prices in the April spot market.

S&P Global Platts Analytics estimated last week the virus could reduce global oil demand by 300,000 b/d in 2020, according to its base-case scenario.

VIENNA MEETING

The outbreak, which has killed at least 427 people and infected over 20,000 globally, has prompted OPEC/non-OPEC, collectively known as OPEC+ to hold a technical meeting on Tuesday and Wednesday.

The Joint Technical Committee of the 23-member coalition of oil producers will meet in Vienna to discuss the impact of the deadly virus on oil demand and whether to move forward a March 5-6 ministerial meeting.

Global airlines from the US to Saudi Arabia have cut or suspended flights to and from China, with Russia closing its 4,000 km-long land border with the Asian country. The Chinese territory of Macau has asked its casinos to temporarily halt operations in the world's biggest gambling hub to help contain the epidemic.

Oman, which is a member of the OPEC+ alliance, sold 69% of its production in December to China, which imported an average of 680,000 b/d of crude from the Gulf state in 2019, according to data from China Customs and the International Energy Agency.

CHINA DEPENDENCE

Oman's 69% share compares with 10% for the UAE, 17% in Saudi Arabia and Kuwait, 14% in Iran and 23% for Iraq. In November alone, Oman shipped 26.8 million barrels to China, or 93% of total exports for the month.

Refiners in China are poised to cut both crude imports and throughput as the coronavirus outbreak reduces consumption, with transportation, manufacturing and industrial activities all slowing down, Platts reported last week.

"Oman's economy relies on oil and gas production and sales to drive GDP growth," said Niamh McBurney, who heads risk consultants Verisk Maplecroft's Middle East and North Africa division. Oman calculated its 2020 budget would be balanced on an oil price of $58/b but assumes prices will average $65/b this year, she said. "Contracts are becoming too close to $58 a barrel for comfort with contracts further into the year pricing in the low $50 per barrel range."

Chinese refineries may decide to keep buying Omani crude to build stockpiles even if they are temporarily reducing output, she said.

Oman has lost some Asian customers over the past 10 years, most recently in Thailand which hasn't been on the list of major buyers since September 2017.

Taiwan also stopped being listed in early 2018, while Singapore was last listed as a major buyer in 2017.

Malaysia was listed as a major buyer back in 2010, and now the list comprises of Japan, South Korea, India and China.

(Updates with analyst comment.)

Exports fell to 3.667 million b/d, the lowest since April 2018, and down 5% from December. Shipments from the Kurdish region dropped to 361,000 b/d from 432,000 b/d the month before, according to S&P Global Platts calculations based on official data and port loading figures.
The drop in Kurdish exports was because of a limited supply of tankers in the first week of the month, leading stockpiles at the Ceyhan port to rise from 600,000 barrels to 1.1 million barrels by January 8, according to a Ceyhan terminal report.
Federal exports averaged 3.3 million b/d, compared with 3.43 million b/d in December, the oil ministry said in a statement on February 1. The decline was due to bad weather in the upper Persian Gulf that affected loadings. The January figure is 420,000 b/d lower than the all-time high of 3.726 million b/d reached in December 2018. Production figures were not published.
Exports of the Qayara heavy oil, transported by truck to the southern Khor al-Zubair port, were still suspended in January due to protestors blocking roads. Of shipments from the Gulf terminals, 74% was Basrah Light 29-31 API and the rest was Basrah Heavy 23-24 API, State Oil Marketing Organization sources said.
The outbreak, which has killed at least 427 people and infected over 20,000 globally, has prompted ith most fatalities and cases in China, where oil demand is expected to slow because of the outbreak that has sent oil prices plunging.

Editor:

Andrew Critchlow