China's Saudi 2016 Crude Contracts Unchanged

Saudi Aramco to ship 1.1 mln bpd contract crude to China in 2016; share of China crude imports at 15 pct, down from 20 pct in 2012.

Saudi Arabia has extended annual crude oil contracts with China for 2016 at almost unchanged volumes for a third year, as Chinese buyers bet on abundant global supplies and low prices to widen their purchase options, senior oil sources said.

The kingdom's oil giant Saudi Aramco is expected to ship just over 1.1 million barrels per day (bpd) of crude oil to China in 2016 under three contracts with Chinese state oil companies, said traders with knowledge of the contracts.

That's on par with annual term volumes since 2014, but as China's total crude imports keep rising, the market share of the world's top exporter has shrunk to just over 15 percent of China's intake, from around 20 percent in 2012, according to Chinese customs data. <C-IMP-SACN-YTD>

Chinese buyers are in no rush to raise volumes under long-term deals, as swelling supplies have pushed benchmark oil prices to seven-year lows and are expected to keep up pressure on spot prices and short-term contracts, the sources said.

Also, former OPEC No.2 exporter Iran is set to ramp up output early next year as sanctions ease.

"Chinese refineries treat Saudi oil more as a base-load feed, rather than as first choice to top up supplies," said a Beijing-based trading manager, especially in a low-price environment.

Saudi Aramco said it did not comment on market speculation about its term contracts. Top state refiner Sinopec said the firm does not comment on specific deals. Officials at PetroChina (PCCYF) and Sinochem did not immediately respond to request for comments.

A rigid allocation system and destination restrictions on contracts also make Saudi crude less appealing compared with oil from smaller but more flexible rivals such as Iraq and Oman.

China is as well embracing rising supplies of better quality oil from countries such as Angola in exchange for loans for construction, engineering and development work.

LITTLE REFINERY CAPACITY GROWTH
With revenues squeezed by low oil prices, state energy giants are scaling back refinery investments as domestic supplies already outpace demand in a cooling Chinese economy.

China is likely to bring online only one new refinery in 2016, the 260,000-bpd PetroChina-operated plant in landlocked southwest Yunnan province, possibly in the second half of the year, according to two PetroChina sources.

Aramco said in 2013 it wanted to become PetroChina's strategic partner in this project as a stakeholder and crude oil supplier, although no deal has been signed as the parties remain apart on issues such as Saudi access to China's domestic fuel market, said a senior PetroChina source.

With no deal on the Yunnan project, PetroChina sees little reason to commit to raising purchases of Saudi oil, said traders with direct knowledge of trade flows between the two companies.

China's Saudi crude oil imports rose 3.1 percent in the first 10 months this year over the same period of 2014 to some 1.02 million bpd, lagging rivals such as Russia and Venezuela in terms of growth as the latter capture new buyers Beijing has allowed in to boost private investment.

Over a dozen refineries, mostly independents, have won state approval to import an aggregate of more than 1 million bpd of crude oil.
 

By Chen Aizhu