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Apart from Lula, Chinese buyers seem to be increasingly
interested in another Brazilian grade, Buzios. Petrobras expects
this new medium sweet crude grade to repeat the success of Lula in
China, with most volumes absorbed by independent refiners across
Shandong. Buzios has become rather popular, primarily due to its
high cetane and rich middle distillate diesel yield. Delivery is
usually set two or even three months ahead, with spot differentials
to Brent recently strengthening. It currently stands close to USD
two per barrel.
It's not only the northern market of China importing these
grades, as Buzios was first discharged in the south of the country
during the last quarter of 2018, but Shandong is now considered the
major driver of this market. The increasing demand pushed Petrobras
to lease crude storage facilities of 2.5 million bl at Dongjiakou
port, to be more flexible in meeting future requirements. But in
parallel to China, other importers have dynamically expressed their
interest for these volumes, including India and the United
States.
Petrobras has been facing some severe delays in completing
projects and meeting targets around Buzios, mainly due to the high
gas yields from its wells, but three out of the five planned FPSOs
are already operational. None of these has reached full capacity of
150,000 b/d, but total output is already believed to have
marginally exceeded 200,000 b/d, with the company targeting 450,000
b/d by the end of the year.
The United States sanctions on Venezuelan and Iranian barrels
has been affecting the direction of flows from Brazil, as China,
the major buyer of Brazilian crude in the past, had to face the
increasing competition from the United States and other countries
avoiding Venezuela's heavier crude such as Merey. China continues
to import from Venezuela, with demand heavily supported by the
significant discount offered. Meanwhile, most refiners across the
United States Gulf have partially replaced Venezuelan barrels with
Brazilian volumes, including heavy sour Peregrino, which could not
fully fill the gap, as production only stands at 100,000 b/d.
As data by IHS Markit's Commodities at Sea shows,
Brazilian crude loaded for China reached a high during November,
but volumes have sharply declined since, as India and the United
States started absorbing more. Both Lula and Buzios produce diesels
with a high cetane number, while aromatics are kept low, making it
rather popular across the Chinese market. The total volumes lifted
have also been affected by the domestic demand which has been
increasing. So far in May, at least six VLCCs have loaded in Brazil
and are now heading to China. This number is expected to be much
higher in June, primarily vessels fixed with Petrobras to load in
Tubarao during the first two weeks of June and discharging across
China in the second half of July.
Posted 31 May 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade