Vietnam's state-run Binh Son Refining and Petrochemical, or BSR, is growing fond of African crude after its Dung Quat refinery successfully tested various light sweet grades produced from the region, but the company may not rush to sign any term supply deals due to high outright prices and fragile domestic fuel demand.
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BSR, the operator of the 148,000 b/d Dung Quat refinery in central Vietnam, is under pressure to find a steady stream of feedstock supply from external sources as the supply of various domestic crude grades that primarily feed the plant is running dry.
The state-run company said July 14 that it has successfully tested Forcados crude from Nigeria and Bu Attifel crude from Libya at Dung Quat.
During the Forcados trial over May 12-20, 40% of the crude was mixed with Vietnamese crude at the CDU capacity of 105%.
Following the successful test, BSR said Forcados could become one of the potential crudes to replace domestic sweet crude Bach Ho, because the Nigerian grade can provide high output of 230,000 b/d with high quality and low sulfur content (0.17%). The share of Bu Attifel in a test conducted in June was 30%.
The successful testing of the two African crudes, along with four other grades tested earlier in the year including Nigerian Qua Iboe and Angolan Cabinda, will enable BSR to fulfill its target of raising the share of imported oil to 20% of the expected 7 million mt of crude for Dung Quat this year, the company said.
However, BSR may need to wait for international benchmark oil prices to cool down before committing to any term supply contracts with African suppliers and oil major with African equities as the current outright prices look overheated, a trading account management source at PetroVietnam told S&P Global Platts. BSR is a subsidiary of PetroVietnam.
Vietnam is also highly sensitive to dollar outflows and foreign currency reserves, the source added.
"It's too risky to commit to any abrupt term deals in times of high uncertainty like the current pandemic period ... besides, the prices are overheated and time will come for better entry as OPEC will return more barrels back to the market, while Iranian supply could also come back eventually," the source said.
With ultra-low interest rates and aggressive monetary easing policies expected to continue supporting broad assets, commodities and energy prices, Asian end-users and consumers are especially hoping for OPEC+ to at least play its part in controlling the highly inflated oil prices for the benefit of global consumer sentiment and demand recovery.
Eleven major Asian refiners and trading companies, including PetroVietnam, surveyed by Platts before the July 1 OPEC+ meeting had hoped the producer alliance would continue to phase out its production cuts and return at least 1 million b/d supply to the market in August-September amid recent oil price rally.
OPEC and its alliance clinched an agreement July 18 to ease production cuts by 400,000 b/d each month starting in August, but many Asian refiners and traders believe the pace of the supply hike is slower than desired.
Fragile domestic oil demand
Apart from high oil prices, BSR is also adopting a cautious stance in refinery feedstock procurement due to the country's fragile oil demand outlook.
BSR had initially planned to increase its oil products output in 2021 by 9.6% to 6.497 million mt, but it is widely expected to fall short of the target as domestic demand for motor fuels is poised to weaken in the third quarter as the country battles to control the ongoing spread of a new wave of coronavirus, industry sources and fuel distributors based in Hanoi told Platts.
The concerns come as the country's business hub, Ho Chi Minh City, announced late June that social distancing measures would be extended indefinitely as the country struggles to contain a fresh spike in cases amid the discovery of several new clusters in the city.
The number of new cases in Vietnam exploded in May after pockets of infections were discovered in the regions of Bac Ninh and Bac Giang, home to large factories producing consumer goods for export.
Since then, Vietnam's COVID-19 cases have remained on an uptrend, with the number of new infections hitting a record high 4,710 on July 17, John Hopkins University data showed.
The impact of the movement curbs on driving activity has been severe, with activity sinking to 38% below baseline levels July 17, mobility data from Apple showed.