SINGAPORE—China’s Sinopec, Asia’s largest refiner, plans to continue to cut their Saudi Arabian crude oil purchases for June and July loadings, after slashing May shipments by 40%, two senior executives from the company’s trading arm Unipec said on April 24.
The Unipec executives, who declined to be identified as they are not authorized to speak to the media, said the reductions in May followed state oil company Saudi Aramco’s decision to raise its official selling prices (OSP) for Arab Light crude which made the grade uncompetitive against other crudes.
The unexpected price increase prompted some Asian refiners to trim imports and seek substitutes in the spot market.
“Arab Light’s economics are not as good as oil from other Middle East producers. So our refineries have reduced their consumption and we will continue to cut,” one of the Unipec executives said.
“We have cut imports in May and we plan to reduce (Saudi oil supply) in June and July,” he said, without indicating how much supplies will be cut. “There’s no reason to use the oil if the (Saudi) OSPs are high and economics do not improve.”
Saudi Aramco did not respond to an e-mail from Reuters seeking comment on Sinopec’s cuts.
Sinopec’s request for a 40% cut in its May Saudi crude imports also coincides with scheduled maintenance at its largest refinery.
Still, the big supply cut raised eyebrows as Saudi Arabia only sells its oil through long-term contracts where the permitted change in the monthly contract volume is plus or minus 10%. This clause, known as operational tolerance, is to allow both parties to adjust volumes based on shipping conditions.
“The 40% cut seems unprecedented. Cuts beyond the usual tolerance levels in crude oil sales contracts typically need to be agreed between buyer and seller in advance,” said Tilak Doshi, a Singapore-based analyst at energy consultancy Muse, Stancil & Co.
Usually long-term buyers would consult with their suppliers if the monthly OSPs are “too high above” levels suggested by market fundamentals, said Doshi, a former Saudi Aramco executive.
If credible, the buyer’s views would be incorporated into setting the OSPs for the following months in the interest of customer relations and to remain competitive, he said.
The Unipec executives declined to elaborate on how the 40% cut would be implemented.
Russia overtook Saudi Arabia as the top oil supplier to China in 2017. Saudi Arabia remained the No. 2 supplier to China in the first quarter, although its exports were down 5.7% from a year ago.
Next month, Saudi Aramco is expected to raise its official prices by at least 50 cents a barrel for June cargoes to track increases in benchmark Middle East crude Dubai this month, said two traders that participate in the market.
Recommended Reading
NAPE: Turning Orphan Wells From a Hot Mess Into a Hot Opportunity
2024-02-09 - Certain orphaned wells across the U.S. could be plugged to earn carbon credits.
Comstock Continues Wildcatting, Drops Two Legacy Haynesville Rigs
2024-02-15 - The operator is dropping two of five rigs in its legacy East Texas and northwestern Louisiana play and continuing two north of Houston.
CEO: Continental Adds Midland Basin Acreage, Explores Woodford, Barnett
2024-04-11 - Continental Resources is adding leases in Midland and Ector counties, Texas, as the private E&P hunts for drilling locations to explore. Continental is also testing deeper Barnett and Woodford intervals across its Permian footprint, CEO Doug Lawler said in an exclusive interview.
CNX, Appalachia Peers Defer Completions as NatGas Prices Languish
2024-04-25 - Henry Hub blues: CNX Resources and other Appalachia producers are slashing production and deferring well completions as natural gas spot prices hover near record lows.
Barnett & Beyond: Marathon, Oxy, Peers Testing Deeper Permian Zones
2024-04-29 - Marathon Oil, Occidental, Continental Resources and others are reaching under the Permian’s popular benches for new drilling locations. Analysts think there are areas of the basin where the Permian’s deeper zones can compete for capital.