Shane Pratt

China's Inflection Point Could Be Here (First published on Sparta's Market Outlook on 21 August, and point number 8 is already happening, with FOB premiums going up and eroding the cracking margins) 1⃣At least 8 mb of Basrah Medium and Basrah Heavy cargoes have been sold to Rongsheng and some state-owned Chinese refiners for prompt delivery, with Basrah Medium rumoured to be at CFR Dubai + sub 10$/bbl levels. 2⃣This is apparently in reaction to missing out on the eighth ADNOC tender (they probably tried to bid for cheaper cargoes but failed). 3⃣Pre-crisis, from Sparta’s rolling front month arbs, the delivered pricing of Basrah Medium spot cargoes was around $2/bbl lower than Oman cargoes into Far East. With Oman currently landing around Oct Dubai+$19/bbl, the pricing of Basrah Medium at CFR Dubai+$10/bbl sounds reasonable. 4⃣On the Saudi allocations front, the quantity allocated to China is now heard to be 14 mb, just 1-2 VLCCs higher than the last three months of 10-12 mb allocations. Zhenhua was heard to have been allocated as well, signalling the start-up of the 300 kb/d HAPCO refinery is imminent. 5⃣There was also 10 mb of Arab Medium and Arab Heavy crudes heard sold on a rare Saudi Aramco tender to Petrochina, Sinochem, Unipec and Rong Sheng for prompt loading. 6⃣Russian ESPO is heard to be sold out for October loaders, whilst Iranian offers are few and far between for the independent refiners. 7⃣As a result, traders are seeing more active inquiries from both state-owned players and independent refiners. 8⃣This should translate to higher achievable FOB premiums, given cracking margins are still in double digits in the Asian markets even with eye-watering freight rates. 9⃣Product exports could start creeping up around October if the crude buying pattern is sustained as well. We will of course need to hear the actual refined product export quotas to confirm. #oott