Singapore — Chinese independent refiners have slowed down their US crude purchases in recent months and could completely stop near-term imports amid growing uncertainties about additional import duties on US oil and gas.
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The most recent US crude shipment for the independent sector was back in late March and no cargoes are expected to come in for the next several months, S&P Global Platts' survey of independent refiners showed.
"Independent refineries have no pending US crude cargo deliveries ... we have not been interested in the barrels for several months now," a Shandong-based refiner said.
"The uncertainty generated from the China-US trade war closes the door to the sector," a Beijing-based crude oil trader said.
Beijing announced on June 16 that it was considering imposing a 25% import tariff on US crude oil in response to President Donald Trump's similar decision on Chinese product imports.
The independent refineries sector imported about 578,000 mt of crude oil from the US so far this year, shared by Shandong-based Hongrun Petrochemicaland Dongming Petrochemical.
These refiners have been actively testing the processing of US crude since 2017, with a total of 1.88 million mt imported last year, accounting for 24.6% of China's total imports of US crude in the year.
Fuhai Petrochemical became the first Chinese refinery to process US SPR crude, which was Bryan Mound Sour brought in by state-owned trading company Chinaoil.
Independent refiners took US crude cargoes through trading companies BP, Trafigura and Chinaoil.
TOO LIGHT OR TOO SOUR
Industry sources said that the cost of processing US crudes was often high as the grades were either too light or too sour for the typical independent refinery.
"We have no plans to shop for US crude this year," a source with Shandong-based Wonfull Petrochemical said.
Wonfull was the first independent refinery to take US crudes, receiving its maiden cargo in April 2017.
For example, WTI Midland is sweet but too light with 42.5 API degree. Mars Blend's API was suitable but its sulfur content is too high at 1.8%with high metals content, two refiners said.
Independent refineries' average crude slate was 28.3 API degree with 0.93 sulfur content in the first five months, Platts data showed.
Therefore, comparing the light sweet crude with medium sour grades, independent refiners would prefer to take the latter, making Mars the most popular US crude in the sector. Mars accounted for 69% of the total imports of US crudes for independent refineries so far.
LIMITED MEDIUM CRUDE SUPPLY
Industry sources said that independent refiners can generally cope with high sulfur content in crude, but the limited supply of medium sour US grades has kept them away.
The growth in US crude oil production is driven by shale crudes, which are mostly light and sweet. Supply of medium density crudes for export has been limited due to high demand among US refineries that were designed to crack these types of grades.
"We also look for Mars but Unipec can only offer us WTI Midland," a Sinopec refiner in central China said.
Unipec is the trading arm of state-owned oil giant Sinopec, which is also the biggest buyer of US crudes on an FOB basis. It has loaded 30.74 million barrels from the US so far this year and it took around 72.7% of US shipments to China in 2017.
But in its latest North American shopping basket with 16 million barrels of US crude for loading in June, most were light grades such as Eagle Ford, Bakken, WTI Midland and Domestic Sweet Blend.
"Independent refineries have a far smaller refining scale than Sinopec, which restricted their feedstock pool," the trader said, adding that the scale allows Sinopec to take a variety of crudes to blend and share among its refineries.
Currently, China's independent refining capacity ranges from 2 million mt/year to 10 million mt/year, while Sinopec's refining capacity is 294.7million mt/year.
-- Analysis by Daisy Xu, Oceana Zhou, firstname.lastname@example.org
-- Edited by E Shailaja Nair, email@example.com