China importing record amounts of oil from Africa
China will import record amounts of crude oil from West Africa this month as OPEC’s supply cuts pave the way for other nations to gain a greater foothold in the fast-growing Asian market.
West African producers led by Angola and Nigeria are set to send crude to China at the rate of 1.48 million barrels a day in April, the most since August 2011, according to loading programmes and traders. Overall Asian imports of West African crude are poised to reach 2.4 million barrels a day this month, also a record.
The surge in flows occurs as the Organisation of Petroleum Exporting Countries curbs output in an effort to drain a worldwide glut that has depressed crude prices for nearly three years. As a result, Asia is increasingly turning to other suppliers for crude, including Africa and the US. By the end of the year, China could become the world’s top oil buyer, according to the International Energy Agency.
The output cuts, in place since the beginning of the year, have made Middle Eastern oil relatively more expensive to other grades, evident in the narrowing price gap between Dubai crude and Brent, the global benchmark. This has boosted Asian demand for West African grades linked to Brent, according to Ehsan Ul-Haq, principal consultant at KBC Advanced Technologies.
“Asian interest in Brent-related crudes has grown significantly” due to the shrinking price difference, he said. Asian refinery margins were weak in March, and “in the absence of Middle Eastern barrels, there is no other alternative for Asian refiners than to remain on a buying spree to meet regional demand.”
Brent’s premium to Dubai crude fell to US$1.13 a barrel on March 27, the lowest since September 2015, according to data from PVM Oil Associates. The differential on Wednesday was US$1.29 a barrel.
State-owned Saudi Arabian Oil Co., better known as Saudi Aramco, has reduced its pricing for some grades to stay competitive. The company on Wednesday cut its discount for Arab Light crude to Asia by 30 cents a barrel.
Asia’s increasing purchases of West African crude provides a valuable source of income for Angola and Nigeria, both of which rely heavily on oil revenues to fund government spending. Sales of Nigerian grades climbed this month to the highest since February 2016 as confidence in the reliability of the country’s flows has improved with fewer militant attacks on oil infrastructure this year.
Unipec, the trading arm of China Petroleum & Chemical Corp., is Asia’s largest buyer of West African crude in April, with 32 cargoes of predominantly Angolan grades. This will help to drive flows of Angolan crude to Asia to about 1.31 million barrels a day this month, the most since June 2015.
Taiwan’s CPC Corp. bought six cargoes, the most since January 2013. Japan’s Idemitsu Kosan Co. Ltd. purchased one lot of Angolan Girassol, the first time a Japanese company has imported West African crude since September.