Booming Chinese crude imports call for new pricing tools

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Jul 01, 2019, 01:00 ET

SINGAPORE, July 1, 2019 /PRNewswire/ -- Crude price volatility is increasing, fuelled by rising uncertainty over the global economy's resilience to trade wars and mounting tensions in the Middle East. It has never been more important to understand the drivers of demand from the world's fastest-growing consuming markets in Asia-Pacific.

To meet this need, global energy and commodity price reporting agency Argus has launched today a transaction-based price assessment for Oman sour crude delivered to Shandong province in China.

The new assessment for the first time expands Argus' suite of delivered Shandong prices to include sour crude and supplies from the Middle East. Argus now assesses prices for four crude grades delivered to Shandong — from Oman, Brazil, Russia and Congo (Brazzaville).

Argus' delivered ex-ship (des) Shandong prices represent the first-ever deal-based spot crude assessments generated in Asia-Pacific, and reveal far more about the state of demand from the region than prices formed many thousands of miles away at the point of loading. They are a forward-looking indicator of demand from the region, presently trading cargoes for delivery in August.

Shandong is the largest destination for Chinese crude imports — accounting for 30-40pc of all shipments. The province is home to 3.7mn b/d of independent refining capacity, over 200mn bl of commercial crude storage capacity and six terminals capable of receiving very large crude carriers. Shandong emerged as the source of marginal crude demand in China in 2015, after the Chinese government relaxed import restrictions, and around 1mn b/d of crude now trades for delivery there.

Until now, crude prices have traditionally been assessed close to the point of production, in the North Sea, the Mideast Gulf and the US midcontinent and Gulf coast. But China's thirst for crude is upending traditional oil trading patterns and creating a need for representative and transparent delivered prices. It is now the world's biggest crude importer, after overtaking the US two years ago, and outpaces India in terms of growth. India's imports have grown at less than 2pc/yr since 2016, while China's are rising at 7pc/yr. China will open nearly 1mn b/d of new refining capacity in 2019, suggesting that crude imports are likely to continue to grow at that pace.

"I am very pleased that we have worked with the market to produce transparent, relevant prices for these four key import grades of crude oil," Argus Media chairman and chief executive Adrian Binks said. "The importance of China in the global oil sector is such that traders need access to delivered prices that represent local conditions and circumstances."

Notes to editors

Argus delivered Shandong crude prices

Grade	ESPO Blend	Djeno	Lula	Oman
Origin	Russia	Congo (Brazzaville)	Brazil	Oman
Loading port	Kozmino	N'Kossa, Djeno	Acu, Santos basin FPSO (Brazil); La Paloma (Ecuador)	Mina Al Fahal
Destination port (Shandong, China)	Qingdao, Huangdao, Dongjiakou, Rizhao and Yantai	Qingdao, Huangdao, Dongjiakou, Rizhao and Yantai	Qingdao, Huangdao, Dongjiakou, Rizhao and Yantai	Qingdao, Huangdao, Dongjiakou, Rizhao and Yantai
Quality	35.6°API, 0.48% sulphur	27.6°API, 0.34% sulphur	29.3°API, 0.36% sulphur	33.3°API, 1.06% sulphur
Average volume of transactions (b/d)	160,000	120,000	320,000	100,000
Description	Differential to front-month Ice Brent in the month of delivery	Differential to front-month Ice Brent in the month of delivery	Differential to front-month Ice Brent in the month of delivery	Differential to front-month Ice Brent in the month of delivery
Relevance	Barometer of regional prices, gives full pricing visibility down the seaborne supply chain	Brings price transparency at the point of sale to trading companies buying or selling west African crude	First-ever assessment for Brazilian pre-salt stream at point of sale in its major market	Clearing price for sour crude in northeast Asia and core grade in the Shandong market

About Argus Media

Argus is an independent media organisation with almost 1,000 staff. It is headquartered in London and has 23 offices in the world's principal commodity trading and production centres. Argus produces price assessments and analysis of international energy and other commodity markets, and offers bespoke consulting services and industry-leading conferences.

Companies in 140 countries around the world use Argus data to index physical trade and as benchmarks in financial derivative markets as well as for analysis and planning purposes.

Argus was founded in 1970 and is a privately held UK-registered company. It is owned by employee shareholders and global growth equity firm General Atlantic.

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SOURCE Argus Media