ANS crude cargo possibly bound for China

Market: Crude oil
20/07/23

A rare 1mn bl cargo of Alaskan North Slope (ANS) may have sold for October delivery to China, according to traders.

The deal could not be confirmed, but if it arrives in China, it would be the third cargo of ANS to the region this year, according to ship tracking firm Vortexa.

In March and June this year, two cargoes of around 1mn bl each departed ANS' home port of Valdez in Alaska and made the voyage to Huizhou in China's Guangdong province, where state-owned CNOOC operates a 440,000 b/d refinery. CNOOC increased crude runs at the Huizhou refinery by 120,000 b/d in May after reopening a 240,000 b/d crude unit.

China took an estimated 3.6mn bl of ANS last year, down from nearly 15mn bl in 2021 and around 19mn bl in 2020, according to US customs data.

ANS is primarily consumed by refiners on the US west coast, where the majority of the vessels departing the Port of Valdez are destined. So far this year, 98pc of the 157 tankers leaving the port were bound for US west coast ports, Vortexa data shows.

But global sour crude supplies remain tight following Opec+ production cuts. Saudi Arabia said it was extending its 1mn b/d unilateral crude production cut for July into August, bringing its effective output target for August to just under 9mn b/d. Russia then announced that it would pair back its exports by 500,000 b/d starting in August. Both announcements have left holes in the supply of crude to Asia-Pacific.

This has prompted Asia-Pacific buyers to seek alternative sour grades such as Mars, which is produced on the US Gulf coast. About 2mn bl of the coastal sour grade is destined to arrive in China in October.

ANS crude for September delivery to the US west coast has sold at premiums to CMA Ice Brent between $2.25/bl and $2.40/bl so far.

The cost to export ANS to Asia-Pacific could be as low as $1.75/bl, putting the grade at a roughly $4.15/bl premium when delivered to China. Meanwhile similar-quality Johan Sverdrup crude delivered to China in October was last reported trading at a $4.70/bl premium to December Ice Brent, or $4.42/bl over September CMA Ice Brent.

This suggests more volumes of the grade could continue flowing to the region if demand remains strong with sour crude supplies tight and competing crudes trending higher.

By Giovann Rosales

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