Oil Erases Saudi Jawbone Gains Amid China Glut Concerns

Oil prices rallied the last couple of days on the heels of Saudi jawboning about just how much they cut production, after concerns on US shale production surging. However, prices are falling back as despite near-record imports of crude reported overnight in China, it appears that historical demand has 'glutted' refiners (who exported record product in 2016) leaving a slew of oil tankers stranded off the Chinese coast.

As Reuters reports, China's crude oil imports jumped to a record high in December as refiners stepped up purchases ahead of a possible OPEC deal to cut supply and bolster prices, and as more independent refiners won import permits.

Exports of refined fuel also surged to a new high as the country's giant state refiners shipped more product offshore in the face of a growing domestic surplus, adding to pressure on Asian refining margins.

 

Crude imports hit 36.38 million tonnes in December, data from the Chinese General Administration of Customs showed, or 8.57 million barrels per day (bpd).

 

 

This was up 9 percent from November and well above the previous record of 8.04 million bpd set last September.

Inbound shipments to China rose to a record average of 7.63 million barrels a day in 2016, boosted by the teapots, Bloomberg notes that government data shows. The purchases were one of the factors that helped crude prices recover from their worst crash in a generation. But then, authorities began clamping down on anyone skirting rules.

However, as Bloomberg warns, that demand/import picture is backward-looking, as now a clutch of tankers filled with crude its buyers couldn’t touch revealed the pall of gloom that’s spread over a coveted oil market.

China’s independent refiners, which contributed to the nation’s record purchases from overseas last year, were unable to take delivery of the shipments earlier this month because they hadn’t received government approval on how much they’re allowed to import in 2017. Vessels with oil wereidling off the coast of the eastern province of Shandong, where the plants known as teapots are clustered, according to people with knowledge of matter.

 

“Following the granting of import licenses from the central government, the Chinese teapots represented a new demand segment in the Asian oil market,” said John Driscoll, the chief strategist at JTD Energy Services Pte, who has spent more than 30 years trading crude and petroleum in Singapore. However, “in addition to the infrastructure constraints from Qingdao to Shandong, regulations, credit issues and geopolitical swings can impair their ability to import. The window of opportunity can slam shut as fast as it opened,” he said.

 

The vessels carrying crude that were idling off Shandong were unable to discharge the oil at terminal ports because they weren’t able to clear customs, said the people, who asked not to be identified as they aren’t authorized to speak to the media.

 

“The Chinese government is tightening supervision as some problems emerged with a surge in crude imports by the independent refiners including alleged misuse of the imported oil or evasion of taxes,” Jean Zou, an analyst with commodities researcher ICIS-China, said by phone.

 

China will definitely insist on its policy to liberate the oil market gradually but it also has to review, reassess and solve the consequential controversies.”

Saudi Arabia reportedly reduced output to less than 10 million barrels a day and will consider renewing its pledge to trim supply in six months, according to Energy Minister Khalid Al-Falih. Still, until monthly production data is released, “these claims cannot be verified,” according to Commerzbank AG.

And the end-result is Saudi jawboning is losing its power…


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