China’s imports of crude from Brazil have surged by 67% year-on-year as the country looks to replace the drop in heavy crude imports from Venezuela.
“Imports from Brazil have surged in recent months, capitalizing on uncertainty from other countries in the region,” said Gibson Shipbrokers.
“With two of China’s key suppliers under sanctions, and many others participating in output cuts, procuring the additional volumes demanded may not be as simple as before.”
Brazilian oil giant Petrobras stated in their recent annual report that 66% of their crude exports in 2018 went to China.
During the first quarter of this year imports of Brazilian crude to China averaged over 665,000 barrels per day (bpd) versus an average of 400,000 bpd a year ago.
“Many modern Chinese refiners are set up to run most effectively on heavier grades of crude, but with heavy crude production suffering of late, demand from China – and globally – has soared for Brazil’s heavy grades,” said Gibson.
The UK shipbroker says Brazil’s crude oil production is set to increase over 350,000 bpd this year according to the IEA.
“However, despite substantial growth, the difficulty markets face now is that Brazilian grades – especially Lula grade - are demanded elsewhere, particularly from the US and India looking to replace Venezuelan barrels,” it said.
With significant refinery capacity due to come online in 2019 and crude production in the Middle East remaining constrained, Gibson said Brazilian crude exports to China should increase further, providing a supportive outlook for VLCCs heading to Asia.
“Uncertainty surrounding Venezuelan export volumes and the outcome of the trade war, coupled with OPEC production cuts offers a significant opportunity for Brazil to capitalise on Chinese demand, which is expected to pick up as refinery maintenance season concludes,” said Gibson.
“With domestic demand growing and political turbulence, China has little choice but to continue to diversify its sources crude supply.
“As such, Brazil could become one of China’s critical sources for these additional barrels.”
