Brazil Bets Storing Oil Will Boost China Sales

(Bloomberg, 27.Jun.2019) — Brazil is making it easier for China’s teapots to buy Lula crude as it seeks to win more market share in the world’s biggest oil importer.

State-controlled Petroleo Brasileiro SA has rented offshore tanks in Qingdao in the eastern province of Shandong and delivered the first oil to them on Wednesday, Qingdao Port International said in a statement. Having local storage allows Petrobras to sell smaller volumes to the independent refineries, known as teapots, many of which are clustered in Shandong.

Brazil’s crude exports to China have risen over the past few years and it’s vying with Iraq and Angola to be the third-biggest supplier after Russia and Saudi Arabia. U.S. sanctions on Iran and Venezuela and production curbs by the Organization of the Petroleum Exporting Countries and its allies are providing the South American country, which isn’t an OPEC member, with an opening.

The Shandong storage “will provide a larger platform for Brazilian oil and promote its sales,” Petrobras director Anelise Lara said in the Qingdao Port statement. The company is seeking to “offer more flexible ways” for Chinese buyers to purchase its crude, she said.

China’s teapots processed around a third of the country’s oil imports last year. They’ve been leading a surge in purchases from Brazil in 2019 as strong profits from turning the country’s viscous, low-sulfur crude into diesel boosted buying interest. The relatively higher cost of similar-quality oil from other countries prompted the teapots to snap up supplies from the Latin American nation. The Lula grade dominates Brazilian exports to China.

The Petrobras move is being driven by the requirements of the Chinese teapots and a global glut that’s challenging oil producers, said Li Li, an analyst at commodities researcher ICIS-China. The trade war and U.S. sanctions on Iran and Venezuela present Brazil with a good opportunity to expand its presence in China, she said.

Chinese crude imports from Brazil reached a record 4 million metric tons in February and have averaged 3.5 million a month so far this year. That compares with 2.6 million a month in 2018 and 1.9 million in 2017.

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