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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Oil Traders Discount Crude As Chinese Demand Weakens

Oil producers such as Iraq, Russia, and the UAE are lowering their crude oil prices to make it salable as demand from Asian buyers remains lukewarm, Bloomberg reports, citing traders.

The most recent instance is two cargoes of Iraqi Basra Light, which BP and China National United Oil Corp. had to sell at steep discounts for lack of willing buyers. Before that, Russia and UAE crude cargos had to be discounted to find buyers.

The news is worrying because most recent reports about China and oil have been optimistic, including news of record refinery runs and equally record import levels. In the past few days, however, other reports have started to emerge, suggesting that the hunger of the world’s largest oil importer for the commodity may be waning.

Chinese oil buyers have been stocking up on dirt-cheap crude since the early days of the global health crisis, which pushed prices even lower than the Saudi price war. But what starts must come to an end, especially when storage capacity is finite and fuel demand on the domestic market is not recovering as quickly or strongly as many may have hoped for.

While some China observers with expert knowledge about the country’s energy industry have argued that China can stretch its storage to soak in more crude, it is by no means endless. And if imports are rising more quickly than local fuel demand, then this storage space would be filling up, reducing Chinese buyers’ appetite for crude.

This is bad news for large oil producers, which had pinned their hopes on China, In the Middle East, Bloomberg reports, producers including Iraq and UAE had even raised their official selling prices for August in anticipation of an increased appetite from China. What they are getting, however, is the opposite. Bloomberg notes that private refiners are starting to reduce their run rates after the record-high rate of 14.08 million bpd recorded for June. State refiner Sinopec is also cutting run rates because of flooding in the Yangtze River.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on July 24 2020 said:
    For China, it is a matter of logistics that has nothing to do with weakening crude oil demand. So don’t rush into conclusions based on the flimsiest of reports.

    How could China’s demand for crude oil be weakening when its crude oil imports in June broke all previous records and hit 11.67 million barrels a day (mbd), when its oil demand is already back to pre-COVID pandemic and when its economic recovery is projected to be back to pandemic levels by the end of this year.

    Chinese oil buyers have been stocking up on exceptionally cheap crude since the early days of the pandemic. They are now offloading the large number of oil tankers anchored at their ports. Once they have determined how much storage space they still have, they will resume their buying spree. Moreover, the longer they wait, the bigger the discounts they hope to get from eager buyers. So it boils down to storage space and choosing their moment carefully to make a kill.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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