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Analysis: Southeast Asia contributing heavily to ample US-Asia crude flows in 2019

Southeast Asia will likely continue to play a pivotal role in support of ample US-Asia crude oil trades in the second half of 2019 despite China’s faltering appetite for US energy products, with Vietnam aiming to procure two more WTI crude cargoes over the coming quarters.

China — Asia’s biggest importer of US crude oil in 2018 — has put sharp brakes on light sweet and medium sour US crude purchases since October last year amid a prolonged trade tension between Washington and Beijing.

China imported 6,991 b/d of crude from the US in Q1, down significantly from 316,771 b/d received in the same period a year earlier, according to data from General Administration of Customs.

However, Vietnam and Indonesia have burst into the North American crude arbitrage trading scene for the first time earlier this year, contributing to yet another year of ample US-Asia crude flows despite the tepid Chinese demand.

Vietnam’s 148,000 b/d Dung Quat refinery will receive its second cargo of US crude oil consisting of 1 million barrels of WTI Midland crude in October, refinery operator Binh Son Refining and Petrochemical, or BSR, said in a statement on Friday.

A third cargo of 1 million barrels of WTI Midland crude will be delivered in December, BSR chairman Le Xuan Huyen said in the statement.

US Assistant Secretary of State for Energy Resources Francis R. Fannon and senior officials at PetroVietnam and BSR held a ceremony in Vietnam on June 18 to celebrate the Southeast Asian buyer’s first ever import of a US-origin crude oil cargo.

The Suezmax tanker Almi Horizon carrying 995,067 barrels of light sweet US crude discharged at Dung Quat port on April 30, BSR said in the statement.

In total, Dung Quat will import roughly 3 million barrels of WTI Midland crude from the US via PV Oil Singapore this year.

PV Oil Singapore is the trading arm of PV Oil. Further information about the seller of the US crude to PV Oil Singapore was not available.

Fannon and PetroVietnam chairman Tran Sy Thanh agreed to bolster cooperation between PetroVietnam and the US side, including the purchase of US crude for Dung Quat.

Apart from the US crude purchases for 2019, Dung Quat also plans to import another 4.45 million barrels of crude oil from other countries, the statement said. BSR did not provide further details.

Elsewhere, Indonesia’s state-run Pertamina also bought its first cargo of US crude in a recent trading cycle. The cargo of light sweet WTI Midland crude arrived in Indonesia earlier this month and more cargoes could be purchased later in H2, company sources said.

EXPENSIVE REGIONAL SWEET CRUDES

With official selling prices and spot differentials for various light sweet Southeast Asian crude grades rising sharply this year, Vietnam’s fast growing appetite for light sweet US crude comes as little surprise, Asian market and industry sources said.

Vietnam mostly imports sour crude from Kuwait to feed its new Nghi Son refinery complex, while the country also buys some sweet crudes from neighboring producers for Dung Quat refinery amid declining domestic low sulfur crude production.

Brunei was the main external source of sweet crude for Vietnam in Q1, with Hanoi importing around 1.85 million barrels from the oil-rich sultanate, according to latest customs data.

Brunei Shell has set the OSP of flagship Seria Light crude lifted in January, February, March and April at $63.56/b, $68.03/b, $70.12/b and $75.36/b, respectively. Brunei Shell is a 50:50 joint venture between the Brunei government and Shell.

With Platts Dated Brent averaging $65.09/b over January-April, Seria Light’s OSP differential to the light sweet crude benchmark for the first four months averaged a premium of $4.18/b. The premium averaged $2.54/b in 2018.

The light sweet Brunei grade’s OSP differential against Platts WTI Magellan East Houston [MEH] on a CFR Asia basis was assessed at an average premium of $1.87/b over January-April.
Source: Platts

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