On July 3 local time, Reuters reported that trade experts said Chinese independent refiners were purchasing cheap crude oil from the Middle East, as traders are trying to liquidate their stocks during a surge in supplies from the world's largest importer.
After reaching a temporary peace agreement between the United States and Iran, oil-producing Gulf states are increasing production and exports through the Strait of Hormuz. This has led to a massive influx of crude oil into the Asian market, causing global oil prices to drop.
According to the trade source, Abu Dhabi National Oil Company (ADNOC) sold 2 million barrels of upper Zakum crude oil to two Chinese independent refiners during its tender on Thursday. The goods were offered at a significant discount of $7 to $9 per barrel compared to the Dubai quotes, based on the FOB price of Fujairah.
A trade expert also said that a Chinese private refining and processing company purchased 2 million barrels of heavy crude oil from Basra, Iraq. This shipment is scheduled to be shipped in July, at a price that is approximately $5 per barrel lower than the ICE Brent futures (C&F basis). Another Shandong-based refiner purchased 2 million barrels of Qatar Shanh crude oil from a European trading company at the same favorable price, with delivery scheduled for the first half of August.
An independent crude oil trader stationed in Singapore, stated: “This has been an active week, as the crude oil traders are busy evaluating various Middle Eastern crude oil quotes for economic viability, with all quotes carrying discounts. It seems that supply has suddenly increased significantly.”
The manager stated that the refining gross profit has recovered to a small profit this week, approximately 100 yuan per ton (equivalent to $14.75).
Another three traders said that the refining profit margins at some refineries in Shandong have risen to 200 to 400 yuan per ton, compared to a loss of 100 yuan per ton in June, depending on the crude oil price.
Reports say that the prices of crude oil at the same level in Iran and Russia are also being suppressed.
According to traders, the latest price for Iranian crude oil is about $3 less per barrel compared to ICE Brent futures (based on tank delivery or delivery standards). The price of Russian ESPO blended crude oil for delivery in China has shifted from a slight premium several weeks ago to being about $3 less per barrel compared to ICE Brent futures. The discount for Russian Ural crude oil shipped to China has also increased to about $7 per barrel.
