China has surpassed South Korea as the top destination in Asia for North Sea Forties crude this year after Royal Dutch Shell sent 10 million barrels of the oil for arrival between May and September.
Stuck with excess North Sea crude after a strike in France dampened European demand, Shell is pushing crude to the world’s second-largest oil consumer as it struggles to find an outlet for its share of the Forties stream close to home.
The volume of Forties crude to Asia has jumped 74 percent in the first half of this year to about 184,000 barrels per day, trade flow data on Thomson Reuters Eikon showed. The current contango structure for oil, where later-dated supplies are more valuable than prompt barrels, bolsters Shell’s trade since the crude gains value during the 50-day voyage from the UK to China.
“The Brent structure supports the trade amid an oversupply of Forties crude, but China’s ability to digest huge volumes is limited,” said a crude buyer with a Chinese refinery.
Crude imports to China are up 14 percent in the first half of 2016 from the same period a year ago after independent refiners were given the green light to import oil in late 2015.
In the first half of this year, China has imported 12.08 million barrels of Forties versus South Korea’s 10.82 million, customs data from the countries shows.
South Korean refiners, a steady North Sea crude consumer, halted their Forties purchases in May amid maintenance and a widening in the premium of Brent crude, the Forties reference price, over Dubai, the benchmark crude for Asian refiners.
China, meanwhile, has taken about 4 million barrels each month from May to August, the data showed.
Traders typically charter Very Large Crude Carriers (VLCC) that can carry 2 million barrels of oil to load Forties from UK’s Hound Point port, go around Cape Town to North Asia in a 12,000-mile journey that takes about 50 days.
Shell chartered the VLCCs Samco Sundarbans and the Victory I for arrival in late June to July at the eastern China ports of Rizhao and Ningbo, respectively, according to the data.
The company also chartered the VLCC Athina, which has been floating off the northern China port of Yingkou since July 23, the data showed.
Shell has another two supertankers Selene Trader and Sara on their way to China and they are due to arrive in mid-August and around Sept. 10, respectively.
Shell said it does not comment on details of commercial agreements.
Vitol is marketing some of the Forties oil, and may have bought the cargo onboard Selene Trader, traders said, and in July, Koch offloaded 2 million barrels of Forties from the Miltiadis Junior at Caofeidian and Lanshan ports.
Independent refiners Panjin North Asphalt Fuel and Dongying Qirun Chemical have bought Forties for blending with heavier grades, according to sources, although they added that demand may be limited because the grade has a high naphtha yield and a relatively high sulphur content.
“It’s also not cheap compared with Middle East grades,” said a second Chinese trader.