Singapore — China appears likely to add Norway into the list of its regular crude oil suppliers in 2020, with the country's independent refiners especially finding North Sea's new Johan Sverdrup crude attractive for its competitive price and familiar specification.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
Norway became a top 10 crude supplier to China's independent refineries for the very first time in November as multiple end-users picked up various grades including Grane Blend, Heidrun and Balder, latest monthly survey by S&P Global Platts showed.
The North Sea crude producer could consistently feature in the monthly top 10 list in China next year as independent refiners provided positive feedback on Johan Sverdrup crude, while state-run refiners were keen to test the new grade.
In addition, latest move by OPEC+ -- a coalition of OPEC and other oil producers -- toward deeper production cuts will likely leave more room for some Chinese refiners to diversify supply sources away from the Middle East with Norway expected to play a key role as a major alternative crude supplier next year, industry and market participants said.
China received its first delivery from the recently launched giant Johan Sverdrup oil field earlier this month via one of state-run Sinopec's refineries.
Unipec, the trading arm of Sinopec, bought Johan Sverdrup crude carried by a Liberia-flagged VLCC ship Orpheas for December delivery through its subsidiary Maoming Petrochemical, in Guangdong province, Southern China, a company source with direct knowledge of the matter told Platts.
The cargo arrived at Shuidong port in Maoming city on December 3 and was discharged on December 8, according to data from cFlow, Platts trade-flow software.
Sinopec's 18 million mt/year Maoming Petrochemical plant often conducts test runs of new crude oil grades.
NEW FEEDSTOCK FOR 2020
China's independent refining sector will likely lead the purchase of Johan Sverdrup crude next year as multiple companies found specifications of the new North Sea crude similar to their regular feedstock grades.
"We have run multiple tests and found the grade acceptable ... its specification is not bad, which is similar to [Brazilian] Lula," a source at an independent refinery based in Shandong told Platts.
Johan Sverdrup is a medium-heavy sour grade with a gravity of around 28 API and a sulfur content of around 0.8%. Brazilian Lula, which is ranked the second most favored feedstock grade for the independent refining sector this year, has a gravity of around 28-30 API and less than 0.7% sulfur content.
Two VLCCs, Saudi Arabia-flagged Niban and the Hong Kong-flagged New Energy, carrying Johan Sverdrup crude are expected to reach Qingdao city in the Eastern China in January, the source said.
Market sources informed Platts that the cargoes have been purchased by Qingyuan Petrochemical and Dongfang Hualong Group in Shandong province.
Other independent refineries including Hongrun Petrochemical also booked a cargo for January delivery, the sources told Platts.
In addition, Luqing Petrochemical booked a 1 million barrel cargo of Johan Sverdrup for February delivery, after paying a premium of around $6.5-$6.6/b against ICE Brent Futures, on a DES Shandong basis, according to multiple trading sources in the independent refining sector.
Chengda New Energy, or better known as Yongxin Petrochemical, also booked a 1 million-barrel cargo for February delivery, the trading sources told Platts.
Further aiding Norway's sales prospect to Asia's biggest oil consumer, Brent's premium against Dubai has been declining in recent weeks.
The Brent/Dubai Exchange of Futures for Swaps -- a key indicator of Brent's premium to the Middle Eastern benchmark -- was assessed at $2.67/b Tuesday, falling from $3.79/b on November 5, Platts data showed.
A weaker EFS makes crude grades produced in the North Sea that are priced against Brent more attractive than some Dubai-linked Persian Gulf and Far East Russian grades.
Multiple independent refinery officials indicated that domestic refining margins have been quite thin recently, as crude cargoes that arrived recently had been booked at high spot premiums.
Far East Russian ESPO Blend crude -- the most favored feedstock grade among independent refiners -- saw its spot differential surge to a record high in recent months.
Platts assessed the medium sweet Russian crude at an average premium of $6.93/b to Platts front-month Dubai crude assessments so far in the fourth quarter, marking the highest ever quarterly differential. The premium averaged $5.43/b in the third quarter and $4.02/b in the second quarter, Platts data showed.
In addition, Brazilian Lula has been changing hands at premiums of more than $7/b to ICE Brent Futures on a DES Shandong basis, Platts reported earlier. In comparison, Hongrun Petrochemical paid a premium of around $6/b for the Johan Sverdrup cargo due to arrive in January, according to multiple trading sources.
-- Oceana Zhou, email@example.com
-- Analyst Daisy Xu, firstname.lastname@example.org
-- Gawoon Philip Vahn, Philip.Vahn@spglobal.com
-- Avantika Ramesh, email@example.com
-- Edited by Kshitiz Goliya, firstname.lastname@example.org