Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
The market starts observing the first oil cargoes originally for
China getting diverted to South Korea or SE Asia, while storage
facilities in Shandong are filling up quickly. The coronavirus's
effect starts becoming clear, with China's energy demand falling
sharply.
The world's leading crude oil importer has been negotiating
several oil cargoes, with ETA over the coming weeks, primarily late
March and April. Many of these could end in other Asian importers.
The country's imports have been quickly affected, with volumes
discharged last week not surpassing 5 million b/d. The activity
normally stands above 8 million b/d. Chinese refineries have cut
output by more than 1.5 million b/d. Meanwhile, crude stocks have
been piling up. The one VLCC after the other won't be able to
discharge more than 2 million barrels of crude each at China's
biggest crude import terminal of Qingdao.
Cargoes will be diverted to South Korea and destinations across
SE Asia. Traders have been focusing on alternative options to
divert cargoes scheduled to arrive in March, which could provide
some time for China's demand to recover.
If a tanker reaches destination but can't be unloaded,
charterers pay demurrage, which could push the total costs of
transport to much higher levels. These fees currently stand above
USD 100,000 per day for cargo arriving in late February/ early
March, further motivating shippers to transfer crude to older
tankers costing. This could be a rather good solution, since
currently, fixed freight rates stand much lower than a month ago,
with an average VLCC earning less than USD 20,000 per day.
South Korea, as the nearest option for storage, is expected to
play a rather important role over the coming weeks, with some oil
traders already looking to secure new crude oil storage leases in
the country. We have already seen tankers loaded in Brazil and
initially heading to China having been diverted elsewhere.
Meanwhile, these market conditions could affect South Korean
imports as well. The country seems to have further increased its
exposure to US crude oil trade flows, with January volumes up more
than 50% year-on-year, as data by IHS
Markit Commodities at Sea suggest. However, based on February's
activity so far, the year-on-year growth for this month will only
be marginal, currently close to 4% since a year ago. The country
seems to have access to many more cargoes which would originally be
imported by China. This could affect the US market share in South
Korean imports over the coming months, with flows from the US
expected to return to previous levels once China starts importing
as normal.
Crude oil flows from Saudi Arabia to South Korea could be
strengthened sharply this month, as data by IHS
Markit Commodities at Sea suggest based on activity so far in
February.
Total volumes moving to South Korea from Saudi Arabia should be
also supported by oil traders' decision to rent storage in the Far
Eastern country after the coronavirus hit Chinese demand. Some of
the world's top trading houses now rent millions of barrels of
crude storage in South Korea to hold excess oil supplies. Firms
such as Trafigura, Glencore and Mercuria and Total added storage
tanks with a capacity of close to 15 million barrels under their
control from South Korea's state oil firm Korea National Oil
Corp.
Contracts recently signed by these traders will last for three
or six months, which could provide enough time for China to recover
from the virus outbreak. With the sentiment in the market improving
since end of last week, some of these traders also target to bet on
a buying spike once the virus is contained.
However, the impact of the coronavirus won't be only positive
for South Korea, as the country's oil product exports will be hit
sharply this year. China's slowdown will affect demand for oil
products, with South Korea expected to suffer a second consecutive
year of decline in oil product exports in 2020. This will be
primarily driven by a slowdown in sales of gasoline, jet fuel and
diesel fuel as China's industrial and transportation operations get
affected since the coronavirus outbreak.
The country's exports of clean products to China went down
around 7% last year, as the country was getting prepared for IMO
2020. The trend will be supported this year, as the coronavirus
outbreak is expected to further slow China's appetite for refined
products.
Posted 20 February 2020 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade