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Cheaper options make Brazilian oil disappear from the radar of independents from China

The flows of Petroleum to China’s independent refiners in May dropped to zero for the first time since January 2016, as buyers turned to Attractively priced barrels from Russia and Iran, a move that would potentially help refiners boost their refining margins, S&P Global Commodity Insights’ data showed June 8.

Once a strong favorite of independent Shandong refiners, the South American exporter’s shipments have been on a downward trend since July 2020, when volumes hit an all-time high of 3.8 million tonnes, or 899,000 b/d, data showed. from S&P Global. In comparison, independent refiners imported 499,000 tonnes of Brazilian oil in April 2022 and 1.5 million tonnes in May 2021.

As discounted Russian crudes are available in abundance – a market situation that is likely to continue for the foreseeable future – trade sources said independent refiners will find it very difficult to resist and make them relatively more affordable compared to shipping crude from the UK. Brazil .

In addition, traders say that even some volumes of Iranian crude have displaced Brazilian supply, as Russian and Iranian crudes were offered at a discount to ICE Brent futures for delivery to Qingdao.

Platts assessed spreads for September delivery barrels of Brazilian Tupi crude at a premium of $5.62/b to Dated Brent, DES Qingdao on June 7, up 21 cents/b on the day, equating to a premium of $7.84/b to November ICE Brent futures, DES Qingdao. Limited exports and robust demand from Europe have kept Brazilian prices high, traders say.

“We see Europe carrying more cargo than before. And almost all Brazilian cargo that arrives in China is carried by state companies. Independent refiners may only have one or two cargoes in the next few months,” a Chinese crude trader says.

Petrobras do Brasil, which owns a 67.216% operating stake in the Tupi oil fields, continues to prioritize supply to the domestic market over exports for its Tupi oil sales, trade sources told S&P Global.

As a result, crude oil imports from Brazil’s independent refiners fell 61.2% year-on-year to 2.95 million tonnes in January-May, dropping to the position of seventh-largest supplier from fourth-largest in the same period last year. .

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Imports from Russia are heading north, with May volumes doubling year-on-year to 2.2 million tonnes and up 8.1% from April, data from S&P Global showed.

ESPO contributed the most to this increase in May, rising 141.7% year-on-year and rising 10.5% in April to 2.1 million tonnes.

In June, inflows from the Urals are expected to join the movement and increase imports from Russia, data from S&P Global showed. At least nine cargoes from the Urals, worth 880,000 mt, are expected to arrive in Shandong for independent refiners in June, with six cargoes scheduled for the port of Qingdao, two for Yantai and the rest for Rizhao.

The expected volume of arrivals from the Urals in June alone is close to the sector’s total Ural imports in 2021 of 925,000 tonnes, data from S&P Global showed. Independent refiners in 2020 imported 5.14 million tonnes of Urals.

Independent refiners halted flow to the Urals in November 2021 due to more competitively priced alternative supplies and subsequently stayed away from buying until late April despite the Urals price dropping to deep discounts from benchmarks following the invasion. from Ukraine by Russia in late February.

As of late April, Ural cargoes for late May or early June deliveries were trading at a discount of around $5-$6/b to ICE Brent oil futures on a DES Shandong basis. , said market sources.

Cautious in Iranian purchases

Some inflows of cargo originating in Iran are expected to continue, although volumes could see a decline following a new set of sanctions imposed by US authorities, refiners and traders said.

Iranian oil imports from independent refiners fell 21.2% from April to a seven-month low of 1.78 million tonnes in May, but were still 32.8% above a year earlier, data showed. from S&P Global.

Almost all May arrivals are reported to customs as Malaysian crude, mostly as Mal Blend, followed by Nemina.

Independent refiners are already taking a cautious stance and staying on the sidelines to buy Iranian oil, as U.S. authorities on May 25 announced new sanctions on several individuals and entities involved in an international oil smuggling and money laundering ring that allowed Iran to circumvent oil sanctions. The entities included Chinese trading companies and an independent Shandong-based refinery, S&P Global reported.

“As prices for other regular crudes rise while domestic demand has yet to fully recover, refiners need to cut costs by taking cheap crude to survive, including Iranian crude and Russian crude,” said one Beijing analyst.

The discount of Iranian barrels against ICE Brent futures increased to about $8/b in the week starting June 6, from $6 to $7/b on a DDU basis in Shandong a week ago, sources said. from the market.

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