Sinopec plans to extend cuts in Saudi crude oil imports to June, July: officials

SINGAPORE (Reuters) - China’s Sinopec, Asia’s largest refiner, plans to continue to cut their Saudi Arabian crude oil purchases for June and July loadings, after slashing May shipments by 40 percent, two senior executives from the company’s trading arm Unipec said on Tuesday.

FILE PHOTO: The company logo of China's Sinopec Corp is displayed at a news conference in Hong Kong, China March 26, 2018. REUTERS/Bobby Yip /File Photo

The Unipec executives, who declined to be identified as they are not authorized to speak to the media, said the reductions in May followed state oil company Saudi Aramco’s decision to raise its official selling prices (OSP) for Arab Light crude which made the grade uncompetitive against other crudes.

The unexpected price increase prompted some Asian refiners to trim imports and seek substitutes in the spot market.

“Arab Light’s economics are not as good as oil from other Middle East producers. So our refineries have reduced their consumption and we will continue to cut,” one of the Unipec executives said.

“We have cut imports in May and we plan to reduce (Saudi oil supply) in June and July,” he said, without indicating how much supplies will be cut. “There’s no reason to use the oil if the (Saudi) OSPs are high and economics do not improve.”

Saudi Aramco did not respond to an e-mail from Reuters seeking comment on Sinopec’s cuts.

Sinopec’s request for a 40 percent cut in their May Saudi crude imports also coincides with scheduled maintenance at its largest refinery.

Still, the big supply cut raised eyebrows as Saudi Arabia only sells its oil through long-term contracts where the permitted change in the monthly contract volume is plus or minus 10 percent. This clause, known as operational tolerance, is to allow both parties to adjust volumes based on shipping conditions.

“The 40 percent cut seems unprecedented. Cuts beyond the usual tolerance levels in crude oil sales contracts typically need to be agreed between buyer and seller in advance,” said Tilak Doshi, a Singapore-based analyst at energy consultancy Muse, Stancil & Co.

Usually long-term buyers would consult with their suppliers if the monthly OSPs are “too high above” levels suggested by market fundamentals, said Doshi, a former Saudi Aramco executive.

If credible, the buyer’s views would be incorporated into setting the OSPs for the following months in the interest of customer relations and to remain competitive, he said.

The Unipec executives declined to elaborate on how the 40 percent cut would be implemented.

Russia overtook Saudi Arabia as the top oil supplier to China in 2017. Saudi Arabia remained the No. 2 supplier to China in the first quarter, although its exports were down 5.7 percent from a year ago. [O/CHINA1]

Next month, Saudi Aramco is expected to raise its official prices by at least 50 cents a barrel for June cargoes to track increases in benchmark Middle East crude Dubai this month, said two traders that participate in the market.

Reporting by Florence Tan; Editing by Christian Schmollinger