Oman sees traders diverting its oil if China demand slumps

Dubai — Oman, the biggest oil producer in the Middle East outside OPEC, expects traders to divert sales of its crude to other markets if there is a slowdown in demand from its biggest customer China 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 an 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 estimates that the virus could see Chinese crude runs falling by about 1 million b/d in February below levels originally expected.

Vienna meeting

The outbreak, which has killed at least 427 people and infected over 20,000 globally, has prompted OPEC/non-OPEC countries, 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 are meeting 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. 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 Japan, South Korea, India and China.