High Venezuelan crude price dampens Chinese independent refineries' bitumen blend imports

China's independent refineries have cut imports of heavy feedstock bitumen blend in October and the trend is likely to continue in coming months due to its rising price as competitors emerge, including state-owned PetroChina, amid the US sanctions relief on Venezuelan crudes, market sources told S&P Global Commodity Insights Nov. 6.

Venezuelan crude imports are expected to be officially reported by Chinese customs after a suspension since October 2019.

The Shandong refineries' bitumen blend imports fell to a three-month low of around 979,000 mt in October, down about 49% from 1.93 million mt seen in September, S&P Global data showed.

Bitumen blend usually consists of various Venezuelan heavy crude oil grades blended together in Malaysian waters and is used by Chinese independent refineries to produce asphalt for paving roads. These blended cargoes were named as Malaysian bitumen blend to avoid the sanction.

A few trading sources said the crude cargoes offered on an FOB Venezuela basis could be translated into a discount of about $16/b to ICE Brent futures on a DES Shandong basis, rising $5-$6/b from the discount of $21-$22/b for the same-origin cargoes named as bitumen blend prior to the easing of sanctions.

Most of these cargoes for loading are more likely to go to the US, leaving less barrels to head East amid limited production, they added.

"This price can hardly be accepted by independent refineries and state-owned refineries could be the only buyers in China," said a Shandong-based trading source.

PetroChina's return

"PetroChina will take up to 8 million barrels of crude from Venezuela with payment in yuan," said a source with knowledge about the matter.

The state-run oil company's return to the Venezuelan oil market after a four-year suspension is set to squeeze barrels available for independent refineries, S&P Global reported.

Sources with PetroChina were not immediately available to comment when S&P Global contacted.

PetroChina is China's leading investor in Venezuela's upstream and the one that has implemented the "all-weather" strategic partnership between Beijing and Caracas.

Since 2019 when the sanctions were in place, China took around five VLCCs of Venezuelan crudes as bitumen blend monthly, market sources said.

As state-owned companies return, some Venezuelan barrels imported into China will be reported as crude from the South American country instead of being declared as bitumen blend by independent refineries.

Spot supplies in Shandong

In the Shandong spot market, a deal of about 300,000 mt bitumen blend stored at a Shandong port has been done at a discount of $21.50/b to the ICE Brent Futures on a DDU basis in the week to Nov. 3, after more-than-a-week of trade suspension since the sanction was lifted, according to market sources.

The price was largely steady with deals concluded in the previous trading cycle prior to the sanctions ease, despite no more arrivals shortly as the FOB Venezuela price depended on independent refineries' interest, trading sources said.

"Demand for barrels is also weak, balancing tight supply in the market," a trader said.

China's asphalt consumption has been weaker than expected amid the slowdown in the country's property sector, while Q4 is usually a low season, trading sources said.

The independent asphalt producers would turn to other heavy feedstocks like Cold Lake, Castilla or Basrah Heavy as alternatives to the Venezuelan barrels, the market sources said.

"These alternatives are also quite expensive, so the buying interests all depend on the price outlook of asphalt and their economics," said the trader source.

This change of feedstock is crucial to these asphalt producers. It might reshuffle the sector with some refineries to quit from producing asphalt due to bad margins and competition, the sources said.

In the first 10 months of the year, China's independent refineries have imported 11.55 million mt of bitumen blend, down 21% from 14.62 million mt during the same period last year, S&P Global data showed.