China independent refineries set to reduce Venezuelan feedstock imports in June

Chinese small independent refineries are set to reduce imports of feedstocks, which are originally produced in Venezuela, due to tight supplies and slow demand for asphalt production, before a recovery in July, market sources said June 13.

Only two VLCC cargoes of Merey crude totaling 600,000 mt will arrive in eastern China in June, Kpler data showed.

That would be down 48.3% from the 1.16 million mt discharged for independent refineries in May, comprising the Merey barrels that were declared as Malaysian bitumen blend and Malaysian crude blend, according to S&P Global Commodity Insights data. However, the volume would be above the 492,000 mt seen in April.

Due to weak demand for asphalt production, combined feedstock imports from Venezuela in the first five months of the year dropped 40.2% year on year to 4.54 million mt, according to Commodity Insights data.

Commodity Insights collects information from trade and independent refinery sources, Kpler, shipping brokers and port sources, and S&P Global Commodities at Sea. The information has been also confirmed by sources with knowledge of the matter.

Slow demand, tight supply

"Demand for asphalt is unlikely to improve in the short term, as the upcoming rainy season in South China will interrupt construction in infrastructure projects," said an analyst with local information provider JLC.

Venezuelan heavy crudes, especially Merey, are a perfect feedstock for production of asphalt.

Producing asphalt from bitumen blend still results in a loss of around Yuan 240/mt ($33.7/mt) as of June 10, although narrowing from the loss of Yuan 540/mt ($75.9/mt) as of May 23 following declining benchmark ICE Brent futures, according to JLC data.

Meanwhile, CAS data points to a decline in Venezuelan seaborne crude oil exports to China in April, down 28.8% month on month at 5.7 million barrels, including the barrels transferred via Southeast Asia, while the exports to the US jumped 54.3% to 5.4 million barrels as sanctions on Venezuelan oil resumed.

A VLCC usually takes about two months to travel from the Caribbean to the Far East.

Supplies for July delivery rise

For July, however, some traders expect more cargoes to arrive, given that output from Venezuela is on the rise and sanctions are in place.

CAS showed about 6.8 million barrels of Venezuelan crude heading East Asia in July. The barrels are most likely heading for China.

In addition, Venezuela is looking to increase its crude output to 1.235 million b/d by December, said Rafael Tellechea, president of Venezuela's state-owned oil company PDVSA, who presented a conference to businessmen in Caracas May 24.

Venezuelan output was 924,000 b/d in May, from 899,000 b/d in April, according to Tellechea. PDVSA plans to add 311,000 b/d to total production over June-December.

On the demand side, some independent refiners have started to blend the heavy barrels with lighter ones as feedstock to produce refined oil products to make profits.

The price of bitumen blend was at a discount of around $12-$13/b against ICE Brent futures for July deliveries in early June, largely stable from June-delivery cargoes, according to market sources.