October 15, 2019 / 5:18 AM / a month ago

China's Sinopec weighs output cuts due to freight rate surge: sources

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

SINGAPORE/NEW DELHI/LONDON (Reuters) - Asia’s largest refiner, Sinopec, is weighing plans to cut oil imports in December and reduce output at its refineries after a surge in global tanker freight rates hit margins, four sources with knowledge of the matter said.

The cost of shipping crude to Asia has surged in the past two weeks after companies stopped using nearly 300 tankers for fear of violating U.S. sanctions against Iran and Venezuela.

Refining margins have yet to catch up with the jump in freight rates, forcing refiners to absorb the costs for now.

“Refineries are facing strong pressure as spot premiums are high and freight rates have jumped, so it’s not economical to import crude,” one of the sources said, adding that Sinopec was considering drawing down crude inventories to manage its needs.

A second source said Sinopec was studying whether it could reduce import volumes and see which cargoes from suppliers in the Americas, Europe, Africa and the Middle East it could cut among those due to arrive in China in December.

“The cargoes have been purchased so it’s still unsure whether the volume, especially for long-haul cargoes, can be cut,” he said.

“Freight rates have jumped to $8-$9 a barrel, up by $7 a barrel. It’s eaten up a chunk of the (refining) margins,” he added.

In a sign the company was already trying to unload some excess supply in the spot market, Sinopec’s trading arm Unipec UK offered four west African crude cargoes last week, but failed to sell them, traders said.

Sinopec declined to comment.

Reporting by Florence Tan in Singapore, Nidhi Verma in New Delhi and Julia Payne in London; Editing by Richard Pullin and Clarence Fernandez

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