China to go shopping for new sources of crude

Author: Andrew Putwain


LONDON (ICIS)--At the beginning of June, Angola cut the number of oil cargoes it had planned to ship to China, its biggest customer, a move that could see China hunting for other crude sources.

  • China to receive no cargoes from Angola in July programme
  • Angola attempts to restructure debt to Beijing
  • China to seeks new crude sources

To date, cargoes sold to China were believed to be part of a deal struck between Angola’s Sonangol and the Chinese state-owned refiner Unipec.

However, Unipec was assigned no cargoes in the latest July loading programme when it would usually receive two or three, according to market sources.

“We are still seeing Chinese buyers looking for cargoes,” a trader told ICIS. “With the price close to $40/bbl, Chinese buyers are in wait-and-see mode. There is also some congestion in the Chinese ports [which] are causing delays in discharge.”

It added that the buyers might not want to pay demurrage as they have multiple vessels to discharge.

The trader also told ICIS that Chinese companies such as Unipec are likely to go looking for barrels elsewhere, such as the Urals, or grades from other smaller west African producers.

Russia’s Urals grade could be key for China in upcoming programmes. Russia has made great inroads into the Chinese market and as European demand has fallen in recent months, it is looking for new buyers.

Overall, Chinese crude imports have been falling, although the country has bought cargoes at depressed prices from several new territories, such as the North Sea basket.

Earlier this year, China bought Nigerian Okwuibome for the first time ever, and countries such as Guyana have recently started exporting crude, which could also become a target for Chinese consumption.

So far, Angolan grade’s differentials have held steady, with no price change in the past fortnight. It comes after Angola underwent a degree of financial uncertainty following the collapse in crude demand during the coronavirus pandemic.

Angola has lowered the number of cargoes it is sending to Chinese state-owned companies to pay down its debt to Beijing. Reports suggest that this is an attempt by the Angolan government to renegotiate repayment terms with Beijing.

Angola has borrowed approximately $20bn from China and had been repaying this with oil. However, the debt has to be renegotiated due to the slump in oil prices as it was based on an oil prepayment facility serviced through cargoes from a designated oil contract.

The pricing structure would have allowed Angola to benefit from any upside in oil prices, but also meant that Angola would provide less crude if the price increased.

Angola’s differentials have begun to recover over the course of May and into this month. They had fallen to negative territory against Dated at the height of the demand slump, but have seen some upward corrective pressure in recent weeks.

In a statement, the Angolan government said it had asked for G20 debt relief, adding that it was in advanced talks with some crude importers about adjusting its financing facilities. The west African exporter also said it expects no further debt overhaul beyond this.

Angola has spent the past several years attempting to reform its crude oil export sector to make it more profitable.

In the meantime, sources have told ICIS that China’s state-owned Sinochem will receive five cargoes in July, down from the usual seven or eight, while the trading arm of Chinese giant Sinopec - Unipec - will receive none.

According to ICIS data, hard hits from recent oil price drops have also seen Angola take a second hit from the recent OPEC+ cuts. The country has been commended for 73% compliance with the reduction, but its baseline production was set at 1.53m bbl/day, a figure not achieved since February 2018.

An outright production decline from Angola’s main regional competitor, Nigeria, from April to May was 18 times larger than that of Angola's, but its compliance with the OPEC+ cuts was over 50% lower.

Recently, Angola also announced that it was suspending all new crude exploration projects. This could lead to supply shortages in years to come.

According to data from ICIS China, Angola has 12 cargoes of crude due to berth at Chinese ports over the course of this month.