Singapore (Bloomberg): At least three Asian oil refiners will take delivery of less Saudi Arabian crude than planned in March as the virus dents demand for fuel and creates a glut of alternative supplies. The companies, which include two Chinese buyers, requested the lower volumes as part of their long-term supply contracts with Saudi Aramco.
They made the request for less oil as the coronavirus weighed on demand, prompting a reduction in refining across the region and leading to cheaper crude being available in the spot market. The reduced volumes are confirmation that the coronavirus is impacting crude sales from the world’s biggest oil exporter, which is leading an OPEC+ push for additional output cuts to try and balance the market.
As China keeps entire cities locked down and airlines worldwide cancel flights, the US Federal Reserve said the outbreak was a risk to the American and global economy.
Of the six refiners polled by Bloomberg, two companies had sought a cut of 10 per cent or more in Saudi oil for March, while another got slightly less supplies for the month. One refiner was asked by Saudi Aramco to take more oil than contracted, but turned down the offer. The remaining refiners requested regular supplies of oil for March and were allocated accordingly.
Chinese refiners have reduced the amount of crude they’re turning into fuels by about 15 per cent, and may deepen those cuts in coming weeks. State-owned and private processors have pared back refining by at least 2 million barrels a day as of last week.
Saudi grades such as Arab Light and Arab Medium form part of the baseload crude for many processors across Asia. Every month, companies with long-term deals to buy Saudi crude tell the producer how much of their contracted supply they wish to take in the coming month, in addition to requests for specific loading dates and other conditions. They’re allowed to seek more or less than the fully contracted volume within a tolerance range, depending on their needs.
After they’ve made their nominations, Saudi Arabia decides - typically around the 10th of each month - how much to deliver, or allocate to their buyers.