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APPEC: Asia still fond of North Sea, S America crudes during fragile oil demand era

Highlights

Asian refiners broadly raise dependency on Middle East crude

Norway exports four VLCCs per month to Asia

Chinese independent refiners favor Brazil, Colombia grades

Singapore — North Sea and Latin American crude oil suppliers are confident that Asia's firm base requirements would keep their exports to the Far East at healthy levels, despite the region's volatile product margins and fragile fuel demand during the coronavirus pandemic, industry executives told S&P Global Platts ahead of the 36th Asia Pacific Petroleum Virtual Conference in Singapore over Sept. 14-16.

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Major Northeast Asian crude importers, including China, South Korea and Japan, have increasingly returned focus to their staple Middle Eastern sour crude diet this year, as attractive Persian Gulf official selling prices appealed to many refiners grappling with tepid refining margins since the outbreak.

Subsequently, this has allowed limited room for various other exotic grades from Africa, Europe as well as North, Central and South America to sell into the Asian market.

Japan for one, saw its dependency on Middle Eastern crude suppliers remain very high this year. The share of Japan's crude imports from the Persian Gulf region in its overall refinery feedstock procurement basket in July stood at 95.2% -- the highest the market share has been since records began in 1950.

Elsewhere, South Korea is poised to slash its US crude imports by at least 50% in the third quarter amid faltering jet fuel consumption, while WTI remains relatively expensive, Platts reported previously.

Still, several select crude grades from Norway and South America will likely maintain their strong foothold in the Asian market, thanks to the wide array of specified end-user requirements and the region's firm base demand, according to executives at Brazil's Petrobras and Norwegian oil producer Equinor.

Due to OPEC's strong production cut commitment, some Atlantic Basin crude grades have managed to increase their market share in Asia, Molly Morris, Equinor's senior vice president for crude, products and liquids, said in an interview with Platts ahead of the APPEC conference.

"We have some good news compared to many of the other gloomy markets out there ... We have seen Chinese demand recover reasonably early, and [can] now say [it is] around 95% of pre-COVID levels. We shipped around four VLCCs per month of North Sea crude to Asia so far this year," Morris added.

Some of the heavy sweet South American grades are quite popular in Asia because they make good blendstocks or feedstocks for IMO-compliant low sulfur marine fuels, said a senior marketing manager at Petrobras who declined to be identified.

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South Korea remains an active buyer of Norwegian condensate Ormen Lange and Snohvit this year, thanks to its firm base demand for gasoline blendstock, as well as feedstock requirements for petrochemical products that support medical equipment manufacturing purposes, industry officials in Seoul told Platts.

The country received 2.6 million barrels of ultra-light crude from Norway over January-July, up sharply from just 728,000 barrels in 2019, latest data from state-run Korea National Oil Corporation showed.

In China, state-run Sinopec Shanghai Petrochemical's imports of Middle Eastern crudes accounted for 84.64% of its overall feedstock purchases in H1 2020, higher than 80.37% a year ago, according to the company's latest interim earnings report.

However, China still emerged as the biggest Asian buyer of Norway's new Johan Sverdrup crude this year, with the country's independent refiners picking up more than 5 million mt of the medium sour North Sea grade in 2020 so far.

The country's independent refining sector also maintained its strong appetite for South American crude grades, including Brazilian Lula and Colombian Castilla Blend, to date this year. The private refining sector received a total of around 17.9 million mt from South America over January-August, up 16% from the same period a year earlier, according to Platts data.

"Heavy-end Brazilian grades are a perfect fit for Chinese independent refinery systems," the Petrobras marketing executive said.