By Muyu Xu
SINGAPORE (Reuters) – China’s oil trading giant Unipec has swept up low-priced supplies of crude from Abu Dhabi, Brazil and the United States, taking advantage of a drop in supertanker freight rates and spot prices in a well-supplied market, traders said.
The purchases by the trading arm of Asia’s largest state-backed refiner Sinopec come amid expectations for a rebound in oil demand in the second quarter after the world’s second largest economy scrapped a “zero-COVID” policy last year.
Unipec snapped up another four cargoes of Abu Dhabi’s Upper Zakum crude loading in March this week, taking its total purchases of the medium sour grade to about 17 cargoes, or 8.5 million barrels, this month, traders said.
Each cargo is 500,000 barrels.
In addition, Unipec bought this month at least five Very Large Crude Carriers (VLCCs) of Brazilian crude oil and three VLCCs of U.S. crude, to be loaded at the end of January and in early February.
Each VLCC can carry up to 2 million barrels of oil.
“I haven’t seen Unipec making such a large purchase in recent months,” a Singapore-based trader said.
Another trader said the rise in purchases may show Sinopec is getting ready to crank up operation once demand grows.
Declining supertanker freight rates and the narrowest spread between Brent and Dubai prices in a year are encouraging Asian buyers to seek cargoes from the Americas.
Spot discounts for U.S. Mars crude for February delivery narrowed to $2.50 against West Texas Intermediate (WTI) benchmark, the highest since Nov. 17, largely supported by the increased cargo buying, two U.S.-based traders said.
The lumpsum freight rates for VLCC sailing from the U.S. Gulf to China has nearly halved to $8.2 million from $15 million in mid-November, which was the highest since April 2020, data from Simpson Spence Young shows on Refinitiv Eikon.
Graphic: VLCC freight rates drop since late Nov https://fingfx.thomsonreuters.com/gfx/ce/lbvggoyegvq/freight%20rate.png
Despite Unipec’s purchases, ample supplies still weigh on spot prices of Middle East crude, which meets more than half of Asia’s demand.
But the head of the International Energy Agency has said markets could tighten this year if China’s economy rebounds and sanctions curb Russian oil exports.
Analysts expect China’s oil demand to resume from March, with a return of industrial activity alongside an economic rebound, while more people are set to travel after recovering from COVID-19 infections.
Sun Jianan, an oil analyst from Energy Aspects, expects China’s fuel demand, primarily gasoline, diesel and jet kerosene, to reach 8.9 million barrels per day in the second quarter of 2023, up 16% on the 2022 period and up from about 8.5 million bpd in the first quarter.
China’s onshore crude inventories remain high, at 948.5 million barrels this week, the highest since May 2021, according to data analytics firm Vortexa.
(Reporting by Muyu Xu in Singapore; Additional reporting by Arathy Somasekhar in Houston; Editing by Florence Tan and Clarence Fernandez)
