Tuesday, September 8, 2009

Chinese buying of West African oil hits new high

By: Reuters, 27th August 2009

A surge in Chinese buying of Angolan crude oil will keep Asian demand for West African oil near its highest level for two-and-a-half years in September, a Reuters survey showed on Thursday.

Cheap shipping costs, low US demand and narrow differentials between low and high sulphur crude, has made West African oil a more attractive option for many Asian buyers, especially those supplying China, where demand has been exceptionally high.

Cuts in production of Middle East crude oil, as the Organization of the Petroleum Exporting Countries tried to stabilise oil prices, have also pushed many Asian buyers towards West Africa, traders say.

Oil industry sources say Chinese companies have bought as many as 32 cargoes of West African oil, ranging from ultra light Nigerian Oso condensate to very heavy Angolan Kuito and even more exotic grades such as Ceiba from Equatorial Guinea.

Chinese demand for West African oil has risen steadily this year and reached a previous peak of 30 cargoes in June from 16 in January, as the Chinese economy has rebounded after a period of slower growth, trade sources said.

'NUMBERS MAKE SENSE'

In total, Asian buyers have taken 52 cargoes of unrefined oil from West Africa for September, just one cargo less than in August, which saw the strongest Asian demand since March 2006.

On a daily basis, Asian consumption of West African oil is likely to average around 1,65-million barrels per day (bpd) in September, even higher than the 1,62-million bpd seen in August because September is a slightly shorter month.

"West African is an ideal alternative to Middle East grades for Chinese buyers and the numbers make sense," said a dealer at a trading house owned by a large state-controlled oil company.

Indian buyers took 18 cargoes from the region in September, compared with 19 in August, while Indonesian state oil company Pertamina bought two cargoes, unchanged from August.

Indian imports have been bolstered by demand from Reliance Industries Ltd, which has opened a new refinery next to its established 660,000 bpd plant in western Gujarat state, almost doubling its processing capacity.

Together the two units have a refining capacity of 1,24-million bpd, making it the world's largest refining facility.

Early spot trades for October suggest Chinese and Indian demand is continuing but the totals may be below those for August and September, traders say.

Longer term, Asian demand will continue to rise, the International Energy Agency estimates.

Crude demand in the Asia Pacific region will rise by more than 2,0-million bpd to 26,7-million bpd in 2014 - with three-quarters of that demand from China - while regional supply will fall by 200 000 bpd over the same period to just 8,0-million bpd.