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China's appetite for Brazilian barrels has remained strong over
the last couple of months, but most recent data by IHS Markit Commodities at Sea
suggests that the peak must have been achieved in the third week of
April, when trade flows of crude oil between the two countries
reached almost two million b/d. Volumes lifted since then have now
returned to normal levels, with last week's activity close to
800,000 b/d. On a monthly average, volumes lifted in Brazil and
heading for China surpassed one million b/d in April. Brazil
shipped more than 60% of its exports to the world's biggest
importer of crude oil last month.
Meanwhile, Petrobras announced its plans to further develop its
relationship with refiners in Shandong even during the crisis.
Brazilian grades are quite similar to China's domestic production
which has been declining. Even during the tanker freight rate rally
and despite the lower oil prices, trade with China remains quite
appealing for the Latin American producer. Petrobras has increased
its storage capacity in South East Asia last year, allowing it to
adjust during extreme volatility.
Crude oil shipments from Brazil could decline more in the coming
weeks though, as Petrobras is understood to be now focusing on a
slow recovery domestically and fuel exports. The company planned to
cut around 200,000 b/d in early April but the stronger than
expected demand in China allowed the company to revise output
targets in the second half of April. Time will show how the rest of
the year will look like.
Brazilian shipments of crude oil in April in b/d by
destination
China's demand has been strengthening while most of the rest of
the world remained under lockdowns. This allowed China to take
advantage of the cheapest crude oil in years and increase its
imports from Brazil. IHS Markit Commodities at Sea
currently shows more than 50 million barrels of Brazilian crude oil
on water heading for China, with 29 ships employed. The last of
these cargoes is expected to reach their destination in late July.
Many of these crude oil cargoes were bought in April, when prices
were under severe pressure. Chinese refineries have been buying
ultra-cheap spot cargoes from countries across the Americas
including Brazil.
Taking advantage of low oil prices, China has increased its
strategic and commercial inventories in early 2020, which allowed
flows to remain strong even during times of rather low oil
demand.
Most recent deals for Brazil's Lula crude for August arrivals in
China reached a premium of about USX 50 a barrel to Brent. The
recovery since the middle of April has had an impact on recent
shipments to China. However, several cargoes are currently heading
for Singapore, with most of them expected to end in China later
this year.
Posted 19 May 2020 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit
