sanctions Biting: Sinopec to substitute Iran crude with Saudi grades: exec

Sinopec to substitute Iran crude with Saudi grades: exec

 

China's Sinopec plans to substitute Iranian crude with that of grades from Saudi Arabia and other origins in the Persian Gulf, even as scope of more purchases from the US was limited due to the overall trade and tariff-related bilateral differences, a senior company executive said late-Wednesday.

"The crude imports from the US are taking place regularly, but the buyers here are very concerned over the current tariff disputes," the Sinopec executive said on the sidelines of the Enmore tankers' conference in Shanghai.

Crude importers in China are concerned about possible escalation of the US-China tariff dispute that can lead to a slowdown, and were therefore cautious on stepping up imports from the US, the executive said.

There are no special import tariffs currently imposed by China on US crude. However, if the US levies further duties on Chinese goods on top of what has already been imposed, a possibility of China retaliating cannot be ruled out, the executive added.

This concern has prompted the Chinese refiners to keep their exposure to US crude relatively small, he said.

Sinopec's crude imports from Iran have grounded to a total halt.

"There is no question of buying Iranian crude unless there is a waiver of the US sanctions," the executive said.

Sinopec has started substituting its purchases of Iranian crude with other origins, he said. While the shift is being done broadly from multiple suppliers in the Middle East, Saudi Arabia is the main source, he added.

At the same time, refiners such as Sinopec are still hoping for a possible US waiver for countries including China, which was until recently one of the main buyers of Iranian crude by volume, the executive said.

Another importer, Japan is trying for such a waiver from the US at the highest level and if successful, it will benefit other large buyers of Iranian crude like China as well, he said, in reference to Japanese Prime Minister Shinzo Abe's ongoing visit to Tehran.

Sinopec's refineries have the ability to produce sufficient amount of low sulfur fuels to meet anticipated demand, once the International Maritime Organization's new norms for low-sulfur emissions from marine fuels are implemented next year.

"Actual production of low sulfur fuels will depend on demand and prices. If prices and margins are good, we can produce enough volumes," the executive said.

Global crude prices are expected to be under control for the rest of the year due to adequate supply, the Sinopec's executive said, pointing out that global supply is expected to increase by 1.8 mln b/d, while the demand is unlikely to increase more than 1.2 mln b/d.

He said China's oil demand is expected to increase by 330,000 b/d and that of the US by 250,000 b/d in 2019.

"It remains to be seen whether OPEC member countries will maintain their ongoing production cuts or change policy by the end of the year," he added.

While supplies from countries such as Libya, Venezuela and Iran have been squeezed, overall global crude prices are expected to move in a narrow range for rest of the year as demand growth is projected to be slower than the average of last 10 years, the executive said.

Several small independent refineries in China have recently slowed down crude processing due to poor margins but Sinopec is "by and large" maintaining its run rates in June compared with the previous month.

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OPEC says trade disputes, geopolitics, rising non-OPEC supply make for challenging 2H19

 

OPEC on Thursday said it faces a challenging second half of 2019, with demand-dampening trade disputes combining with expected robust non-OPEC supply growth to complicate the producer bloc's oil market rebalancing efforts.

ts 1.2 million b/d supply cut agreement with Russia and nine other non-OPEC allies expires at the end of the month, and in its closely watched monthly market analysis, OPEC said it must weigh a potential slowdown in global economic activity against geopolitical supply risks.

"The upcoming OPEC and non-OPEC ministerial meetings will carefully consider these developments, in order to ensure continued market stability," OPEC said in the report.

Saudi Arabia, OPEC's largest member, has advocated for a rollover of the cut agreement, saying oil inventories are still bloated, while Russia has said the coalition should consider more flexible quotas, given the expected impact of US sanctions on Iranian and Venezuelan crude supplies.

A proposal for a deeper cut has been floated, as well, with oil prices having slumped almost 20% in the last eight weeks.

The OPEC/non-OPEC coalition has yet to even agree on a date for its meeting to decide on the deal's future, with some countries favoring June 25-26 and others July 3-4.

In its report, OPEC's analysts suggested that the organization's 14 members could raise their production modestly and still keep the market in balance.

Though it revised downward its forecast of 2019 demand growth, OPEC's "record-high conformity levels" with its quotas have pushed the bloc's production below the expected level of demand for its crude, the report showed.

OPEC pumped 29.88 million b/d in April, according to an average of the secondary sources used to monitor output.

But the call on OPEC crude will average 30.52 million b/d for the year, including a robust 31.21 million b/d in the third quarter, the report said.

Even so, OPEC said it would tread cautiously. The organization forecast that 2019 oil consumption will rise 1.14 million b/d year-on-year, a downward revision of 70,000 b/d from last month's report, as "significant downside risks from escalating trade disputes spilling over to global demand growth remain."

Non-OPEC supply, meanwhile, will grow at almost double that pace, at 2.14 million b/d, unchanged from the previous forecast, led by US shale, as well as production ramp-ups in Brazil and the potential start-up of Norway's Johan Sverdrup field.

OECD oil inventories rose 25 million barrels in April, according to the report, and are 7.6 million barrels above the five-year average that OPEC has said it is targeting with its production cuts. Crude stocks, however, are 200,000 barrels below the five-year average, while product stocks are 7.9 million barrels above.

FALLING OUTPUT

Saudi Arabia continued to maintain strong production discipline, pumping 9.69 million b/d in May, according to secondary sources. That is 620,000 b/d below its quota of 10.31 million b/d under the deal.

Saudi energy minister Khalid al-Falih has repeatedly pledged to "do what is needed" to maintain oil market stability, including cutting further.

Sanctions-hit Iran produced 2.37 million b/d in May, a 227,000 b/d plunge from April. Sanctions waivers the US granted to eight countries allowing limited purchases of Iranian crude expired in early May and were not renewed.

Venezuela, also impacted by US sanctions, saw its production fall to 741,000 b/d, a 35,000 b/d drop from April and the lowest since a strike in late 2002 and early 2003 brought its oil industry to a near standstill.

Iraq, OPEC's second-largest producer, raised output by 94,000 b/d to 4.72 million b/d in May, the report showed. That far exceeds its quota of 4.51 million b/d under the OPEC/non-OPEC agreement.

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