SINGAPORE- Several Chinese independent refineries, or teapots, as the industry calls them, have snapped up crude supplies after prices slumped, betting that they are bottoming out and China's demand could recover from a coronavirus outbreak in coming months.
The refineries were absent from the market for weeks since the Lunar New Year holiday of late January, eight sources familiar with the matter said.
Chinese refiners have slashed output by at least 1.5 million barrels a day after the virus outbreak hit China's fuel demand and swelled its crude and fuel inventories.
"This is only bargain-hunting," said one refinery source who bought a cargo last week. "Demand is still very bad."
Spot premiums for Brazil's Lula crude and Russian ESPO crude delivered to China have fallen to around $2.50 a barrel to ICE Brent, down from offers at $4 a barrel in early February, while Congolese Djeno crude's premium has fallen below $2 a barrel, three of the sources said.
The teapots together account for a fifth of China's imports of crude oil.
Among the buyers, mainly located in the eastern province of Shandong, Wonfull Petrochemical last Friday bought two million barrels of Djeno crude from an oil major for delivery in April, two of the sources said.
The cargo was sold at a premium of around $1.70 a barrel above ICE Brent from BP, one of the sources said.
Last week, Sinochem Hongrun Petrochemical bought a prompt Mandji crude cargo from Total at a discount of $1 a barrel to ICE Brent for arrival in mid-March, another of the sources said.
Shouguang Luqing Petrochemical bought seven cargoes of crude for delivery in March and April, three of the sources said.
That included three cargoes of Russian ESPO crude, three cargoes of West African crude - probably Oguendjo, Kissanje and Gindungo - and one cargo of Norway's Johan Sverdrup crude, they added.
Wudi Xinyue Petrochemical, Bora Enterprise Group, and Jincheng Petrochemical have also bought crude cargoes in the spot market, four of the sources said.
"They (the teapots) are probably betting on the market outlook, thinking the market is at the bottom now," said one of the sources, who trades with Chinese buyers.
Sellers are facing losses of $3 to $4 a barrel as they bought these cargoes in January and booked oil tankers when freight costs were high, a trader with a Chinese firm said.
Demand from Chinese state-owned refiners, which have all cut output, remained muted, the sources said.
Only a few teapots, such as Wonfull and Hongrun, are still able to use their own storage to take crude coming in the near term, they said.
"I wouldn't call this a massive rebound in demand. There are still a lot of spare spot cargoes available... The price is OK," said one of the sources, adding that her refinery's monthly crude purchase volume in March and April was expected to fall 30% to 40% from before the new year.
(Reporting by Shu Zhang, Aizhu Chen and Florence Tan in Singapore; Additional reporting by Julia Payne in London; Editing by Clarence Fernandez) ((shu.zhang@thomsonreuters.com; +65-6870-3549; Reuters Messaging: Twitter @shuzhang4))
