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Two Sinopec refiners to share Khafji crude cargo

Rare trade flow amid tightening heavy sour crude supply

Tokyo — Japan has shipped a Khafji crude cargo from the Shibushi strategic petroleum reserves in Kagoshima to Sinopec refineries in China's Shandong province, sources with direct knowledge of the matter told S&P Global Platts Friday.

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The Khafji crude cargo of about 1.73 million barrels was shipped from Shibushi to Qingdao by a Japanese company on September 12, following its purchase of the heavy sour crude cargo in a tender by the Ministry of Economy, Trade and Industry in June, the sources said.

China's rare purchase of the heavy sour crude cargo from Japan came to light at a time when there is tightening supply of heavy sour grades from the Middle East amid OPEC's production cut, coupled with US sanctions against Iran and Venezuela.

Khafji is a heavy sour crude with an API degree of around 28.5 and a sulfur content of around 2.85%.

SINOPEC REFINERIES

Sinopec's Qilu Petrochemical will take about 63,000 mt of the Khafji crude oil cargo, with Sinopec's Qingdao Refining and Petrochemical taking the balance of 180,000 mt in Shandong province in China's east.

"The grade is almost the same as Arab Heavy, and the same price," said a source with Qilu Petrochemical.

This was the first time the refinery has taken the grade this year, following its first purchase of the grade about five years ago, said the source, adding that the latest cargo was offered by Unipec, the trading arm of Sinopec.

In August, Saudi Aramco set the official selling price for Arab Heavy crude oil loading in September and bound for Asia at a premium of 65 cents/b over the monthly average of S&P Global Platts Oman/Dubai assessment.

The Khafji crude cargo on the VLCC Zourva is waiting to be discharged Friday, following the arrival in Qingdao port on Wednesday, said a source with Qingdao port in Shandong province.

The Malta-flagged VLCC Zourva arrived Qingdao Friday after having left Shibushi on September 12, according to Platts trade flow software cFlow.

A METI source also confirmed the shipment of the Khafji crude cargo from the Shibushi terminal in Japan's southwest on September 12.

SELLING SPR

METI sold around 275,283 kiloliters or 1.73 million barrels of Khafji crude from the country's nationally held SPR in Shibushi in a tender on June 10.

This is part of Japan's plan to replace medium and heavy crude stocks in the nationally held SPR with lighter grades to reflect growing domestic demand for lighter oil products.

Khafji crude comes from the 300,000 b/d offshore Khafji field located in the Partitioned Neutral Zone shared by Saudi Arabia and Kuwait. Production from the field has been halted since October 2014 due to a dispute between the two countries, and it is unclear if production has been restarted.

Japan last sold a total of around 400,000 kl or 2.5 million barrels from the SPR via tender on August 10, 2018, for shipment from the Shibushi terminal over October 10, 2018-January 31, 2019.

In the last tender, Japan sold around 100,000 kl each of Dubai, Iraq's Basrah Light, Oman and Mexico's Isthmus crude oil.

-- Takeo Kumagai, takeo.kumagai@spglobal.com

-- Analyst Daisy Xu

--Gawoon Philip Vahn, philip.vahn@spglobal.com

-- Edited by Jonathan Fox, newsdesk@spglobal.com