Rare resale of Arab Light crude seen in China amid deep discounts for May deliveries

Singapore — China's independent refinery Dongming Petrochemical received a rare spot cargo of 245,000 mt or 2 million barrels of Arab Light in late May as the country's crude imports from Saudi Arabia appeared likely to hit an all-time high in the month amid deep discounts, three sources with direct knowledge of the cargo said over June 8-9.

A Shandong-based source said the 7.5 million mt/year Dongming refinery received the spot cargo from a trading company instead of directly from Aramco, without giving further details, and added the refinery has no plan to take more Arab cargoes in the short term.

Saudi Aramco usually sells cargoes globally via term contracts directly to end-users with restricted destinations. Aramco cargoes are not typically found in the crude spot market for resale due to the producer enforcing its restrictions tightly.

In this instance, Aramco was aware of the deal and the resale was likely to be a one-off situation, a Singapore-based source familiar with the matter said

A term buyer "may sell on their crude if they no longer want it, with Aramco's permission," a second Singapore-based source said.

Saudi Aramco slashed pricing of its crude exports for April, including the biggest cut ever for Arab Light crude by $6/b for Asia in early March, which attracted heavy buying from China in late March.

As a result, seaborne crude arrivals from Saudi Arabia surged to a record high of 2.25 million b/d in May from 1.17 million b/d in April, trade flow tracker Kpler showed.

However, not every Chinese term buyer has enough space to absorb all these barrels, potentially prompting the need to resell.

Aramco has seven term buyers in China - Unipec, PetroChina International, CNOOC, Sinochem, Zhenhua Oil, Hengli Petrochemical (Dalian) and Zhejiang Petroleum & Chemical.

"The Arab Light barrels were taken at a low price, which will be economically blended with other crudes to feed Dongming's CDUs," the Shandong-based source said.

Dongming is configured to process heavy crudes.

Rising international benchmark outright prices, combined with the sharp hike in Saudi Aramco's official selling prices for July-loading cargoes, could put the brakes on China's buying in the third quarter, further limiting the window for such spot deals, industry officials and market sources said.

Saudi Aramco on June 7 set the OSP differential for its Arab Light crude headed to Asia at plus 20 cents/b against the average of the Dubai and Oman benchmarks over July. That is up $6.10/b from the June price and far above the $2-$5/b increase that traders had expected, according to an S&P Global Platts survey.

SECOND SPOT SALE

This was the second spot crude cargo from Saudi Arabia taken by a small-scale independent refinery in Shandong province, despite state-owned Saudi Aramco lifting exports to China to expand market share in recent years.

The Singapore-flagged VLCC Boyacá discharged 245,000 mt of Arab Light around May 25 into Rizhao port in eastern Shandong province after loading from Ras Tanura in Saudi Arabia on April 25, according to trade flow tracker Kpler.

This suggests the cargo was the first spot Arab crude cargo directly loaded from Saudi Arabia to the sector.

The previous cargo, which was Arab Heavy taken by Chambroad Petrochemical in the same province in 2016, was loaded from Okinawa in Japan.

Chambroad's cargo was sold directly by Aramco Beijing as the company's first attempt to deal with the sector.