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Higher freight costs hit Asian refiners hard
PERFORMANCE
ASIA’S refiners are preparing for a bumpy final quarter of the year as higher supertanker rates – owing to US sanctions on several Chinese ship- pers – eat into gross refining margins (GRMs).
Shipping rates soared following the US’ announcement on September 25 that it would impose sanctions on six Chinese shipping com- panies that Washington believes violated restric- tions on transporting Iranian crude oil.
The price spike will reportedly see Asia’s big- gest refiner, Sinopec, scale back its run rates from November. Bloomberg cited unnamed sources as saying on October 15 that the Chinese state- owned company could reduce its refinery runs by as much as 1mn tonnes (236,000 barrels per day, bpd) of oil in December.
Reuters quoted several Asian refinery offi- cials on October 14 as saying the higher trans- portation costs would hurt their margins. One unnamed official from a Chinese state refinery said: “We’ve been in a net loss for most months so far this year, and the fourth quarter doesn’t look good either, as premiums for Middle East- ern grades are high and freight rates have more thandoubled.”
Crackdown
Maritime shipment monitor Tankertrackers told
the Financial Times in August that it had tracked
at least three Chinese tankers interacting with
Iranian vessels since May. TankerTrackers’ Samir
Madani told the UK financial daily: “The data
and imagery clearly suggests that these tank-
ers, all of which have been linked to the Bank of
Kunlun, are involved in transporting Iranian oil.
ThesetankersareactingasabridgebetweenIran
andChina.” OIESsaidthatinadditiontothesanctionson
The US’ blacklist ended up including COSCO Shipping Tanker (Dalian) and COSCO Shipping Tanker (Dalian) Seaman & Ship Management – units of China’s largest shipping company, China COSCO Shipping – joined Kunlun Holding, Kunlun Shipping, Pegasus 88 and China Con- cord Petroleum.
Washington’s decision sent day rates for supertankers along the Middle East to China route to a more-than decade high. UK-based Baltic Exchange noted that the cost of charter- ing a supertanker had surged fivefold as char- ters were cancelled and replacement vessels were sought.
This has had an inevitable knock-on effect on other trade routes, with Bloomberg’s calcu- lations showing that the cost of shipping West African crude to Asia had risen to record $8 per barrel on October 12. The newswire said this was roughly four times the average for the first eight months of the year.
“A West African oil shipping fixture that we used to do for $3mn to $4mn has gone up to $8mnto$9mn,”ReutersquotedanIndianrefin- ery source as saying on October 14.
the Chinese companies, the decision by global traders ExxonMobil, Equinor, Unipec and Tra- figura to ban the use of vessels linked to Vene- zuela oil flows had “effectively taken close to 300 of the global tanker fleet offline.”
It added that two additional factors were exacerbating the problem. First, vessels travel- ling from the US to Asia take longer to deliver their cargoes and are out of the market for a greater period as a result. Second, more and more tankers are undergoing retrofits ahead of the implementation of the International Mari- time Organization’s (IMO) new emission stand- ards on January 1, 2020.
The report’s authors, Adi Imsirovic and Michal Meidan, warned: “Depending on the length of the disruption, all aspects of the oil industry may be affected: refining margins, oil flows, relative benchmark values and ultimately even supply, demand and prices.”
Bloomberg had reported on October 10 that the Chinese government was prepared to raise the issue of sanctions during last week’s trade negotia- tions with the US. There had not been any change in the US’ position as at time of publication.™
In an October 15 note, the Oxford Institute for Energy Studies (OIES) said the cost of trans- porting a barrel of oil from the Persian Gulf to Asiahadclimbedby$6perbarrelinalittlemore than a week.
Refinery pain
Commenting on the fallout from the price hike, OIES said: “At times when refinery margins are in single digits, this is a major blow to refinery profitability. Rising freight rates will also impact international trade flows, and there is already evidence of surging US oil exports to Europe, as they normally move in smaller tankers, while the volumestoAsiaarefalling.”
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w w w . N E W S B A S E . c o m Week 41 16•October•2019