* Russia, Iraq oil sales rise more than projected China
* Producers in Latin America, Africa offering discounts to
* Latin America, Africa volumes to China dropping this year
By Jacob Gronholt-Pedersen
SINGAPORE, Feb 19 Russia and Iraq are boosting
crude shipments to a Chinese market where oil demand is growing
at its slowest in more than 20 years, forcing rival suppliers to
divert cargoes elsewhere.
The redirected shipments from Latin America, Africa and some
Middle Eastern producers that were originally expected to go to
Chinese refineries will drag on benchmark prices this year, and
state oil companies have already started cutting official
selling prices in their search for buyers.
Russia's Rosneft, backed by its government to push
East Siberian oil to Asia, and Iraq, armed with big discounts
and easy terms, have landed contracts that will raise their
combined shipments nearly 50 percent more than China's import
demand is forecast to grow in 2014.
With state refiner PetroChina and oil
major BP Plc also delaying or dropping refinery projects
in China due to worries about demand growth, sellers will be
scrambling for shares in a market smaller than they had
"Lots of people all around the world want to sell crude to
Asia, and there may not be enough demand for everyone," said
Andrew Reed at Energy Security Analysis, Inc.
China's oil demand rose just 1.6 percent last year, its
slowest pace since 1992. Its crude imports grew 4 percent, their
slowest since at least 2007, according to Reuters data, and down
from a rise of more than 17 percent in 2010.
Although top China oil company China National Petroleum Corp
(CNPC) has said the nation's crude imports will rise 7.1 percent
this year, or about 370,000 barrels per day (bpd), the bumps in
Russian and Iraqi supplies would more than match that increase.
Russia's biggest oil producer Rosneft, which supplied over
300,000 bpd to China in 2013, will ship an additional 180,000
bpd this year, with China-bound exports eventually to rise to
more than 900,000 bpd.
"It's a logical move. Russia is simply trying to secure a
long-term offtaker of its crude," Reed said.
As Iraq pushes hard to raise its market share in China and
Asia, it is set to become China's second-largest crude supplier
this year by increasing shipments by 68 percent to 882,000 bpd.
Last year, Iraq passed Iran to become China's fifth-largest
supplier after cutting its official selling prices for its main
crude Basra Light.
FIGHT FOR SHARE
China's increased imports from Russia and Iraq only
intensifies the fight for Asian market share among other oil
Producers in Latin America and Africa are already offering
steeper discounts to Asian buyers as import needs in their
traditional U.S. and European markets drop. BFO-QUA
"As the Atlantic basin needs less and less oil, crude from
Latin America, Africa and Russia will have to find a new home,"
said Jeff Brown of FG Energy.
"Naturally they're looking to Asia."
This prospect of oversupply and ongoing slow growth in China
prompted investment banks such as Goldman Sachs and Barclays in
December to lower their oil price forecasts for 2014.
Dutch bank ABN AMRO in January cut its average Brent price
for this year to $95 a barrel from $100.
"Oil oversupply is here to stay, at least in the next few
years, outpacing the rise in demand and thus keeping oil prices
under pressure," it said in a research note.
This month, however, the International Energy Agency (IEA)
became the third major forecaster to say that global oil use
would be higher than expected this year due to economic growth
in the United States and Europe.
Oil inventories are also at their lowest since 2008 because
of stronger-than-expected demand and supply problems in a number
of OPEC countries, the IEA said.
Still, the bump in supplies to China from Russia and Iraq
look especially bad for Latin American exporters, who had been
looking to Asia as surging U.S. shale oil output robs them of
By the end of the first quarter, shipments of Latin American
crude to China are likely to have fallen by 10 percent from a
year earlier to around 504,300 bpd, according to data compiled
by Thomson Reuters. Compared with the first quarter of 2012,
that volume would mark a fall of about 25 percent.
Latin American producers deliver a set volume of crude and
products to China under annual deals, and Chinese companies
sometimes launch tenders to resell a portion of them, after
factoring in domestic requirements.
"If China's oil demand slows down, resales of Venezuelan and
Ecuadorian crude and products will increase," said a trader
working in a private firm and involved in PetroChina's sales.
All Ecuadorian fuel oil being delivered by Petroecuador to
PetroChina, some 100,000 bpd, is currently being resold by
PetroChina, and it also frequently resells crude and different
Venezuelan refined products, the trader said.
Shipments of West African grades to China are also likely to
fall in January and February versus a record in November,
although it is too early to say if the drop reflects a decline
in China's appetite for the crudes.
(Additional reporting by Marianna Parraga in HOUSTON and Simon
Falush in LONDON; Editing by Manash Goswami and Tom Hogue)