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Chinese refiners are not rushing to finalize deals for oil cargoes from West Africa for August, expecting prices of crude grades from Angola to drop from recent highs as the global oil benchmark slumped and the market structure points to weakening premiums for prompt deliveries, Reuters reported on Monday, quoting refining and trading sources in Asia.
China’s refiners are currently in the market looking for supplies for August, but they are not jumping to close deals because the Brent Crude backwardation—the market situation in which front-month prices are trading at a premium compared to prices further out in the future—has sharply narrowed, pointing to possible weakening of the spot prices, industry sources told Reuters.
Sources at Chinese refineries told Reuters that the differentials of West African crudes are still very high, making imports unprofitable.
In addition, refining margins in Asia have been recently pressured and dropped to their lowest in 16 years, with refiners across the region said to be considering cutting run rates.
Although refiners in Asia are not left without choice for crude after the end of the U.S. sanction waivers for Iranian oil, the higher price of alternative supplies, as well as soaring fuel exports from China, are depressing refining margins across Asia.
Chinese refiners, for their part, have been stocking up on crude oil in the first half of this year, so there would probably be a slowdown in oil imports in the third quarter, Seng Yick Tee with Beijing-based consultancy SIA Energy told Reuters.
Because buyers in Asia have not been pleased with the high prices of cargoes from Angola, the offers of Angolan grades—both heavy and light crudes—were revised down by between US$0.20 and US$0.30 a barrel last week, according to trade sources who spoke to Reuters.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.