BP Long on Millions of Barrels of Crude off China

 

Four supertankers chartered by energy major BP have been held up or delayed off China's east coast over the last two months, unable to fully discharge oil as slowing demand from the country's private refiners starts to impact global markets.

 

Two of the four BP-chartered very large crude carriers (VLCCs) are still off Shandong province holding half their cargoes of Angolan crude oil, and another is headed back there from South Korea, according to trade flow data in Thomson Reuters Eikon and two shipping sources who track these vessels.

 

It's not clear why the tankers have had so much trouble offloading all their oil, or if BP had first secured buyers for the 8 million barrels - worth more than $600 million at current market prices - that was loaded onto the vessels out of Africa. BP has declined to comment on the matter.

 

What is apparent is that the fortunes of China's independent refiners, often called "teapots", have turned for the worse amid escalating global trade tensions, rising crude oil prices, an oversupplied domestic fuel market and tighter government tax scrutiny.

 

"Either it's because of lower run rates curbing teapots' buying, or the buyers are having problems paying," said an executive with a western trading house.

 

While an executive at an independent Shandong refiner said: "The market is bad - weak demand as plants come under policy headwinds ... (with) the tax rules biting into margins."

 

Both executives declined to be named as they were not authorised to speak publicly about commercial operations.

 

It is not unusual for producers like BP to ship cargoes before finding a buyer. But having cargoes orphaned for two months is less common, several oil traders and shippers said.

 

Paying for supertankers, each half a kilometre (0.3 miles) long, to wait in open seas to unload is costly as well.

 

Although it is not known at what rate BP chartered the four vessels, shippers estimate the daily charter rate for a VLCC is now about $30,000 a day. So, four chartered VLCCs sitting idle for a month would cost BP around $3.6 million.

 

BP declined to comment on the cost of having the tankers waiting off China to unload oil.

 

Several traders and shippers said BP was unlikely the only seller caught off guard by the slowdown in demand and the teapots' troubles, although all said stranded cargoes of this size and duration is rare.

 

Among the four BP-chartered ships, the Texas has been held up the longest. It discharged part of its Angolan crude load in mid-April at Qingdao and was slated to offload the rest of its cargo at Rizhao, another port in Shandong, shortly after.

 

Instead, the Texas has been anchored off the coast until this week, when it discharged 130,000 tonnes on Thursday, according to a port source with knowledge of the matter.

 

Another VLCC, the Olympic Light, has been floating near Qingdao after discharging part of its cargo on May 12, and may now be heading to the port to discharge the rest of its crude.

 

The Mercury Hope, a third VLCC, has been looking for a home for its remaining cargo after it discharged part of it at Qingdao in late May.

 

A fourth VLCC, Olympic Luck, planned to deliver crude to Qingdao in early May but turned away and transferred half of its cargo this week to a smaller tanker off Nagasaki, Japan, and then sailed towards South Korea.

 

Now it has turned back and is heading towards Rizhao, still with oil onboard, according to shipping data on Eikon. The ship is scheduled to unload its cargo later on Friday, said Emma Li, an analyst with Thomson Reuters Oil Research and Forecasts.

 

China's teapot refiners, of which there are now almost 40, were only given oil import permits from 2015. They now make up a fifth of the 9 million barrels per day (bpd) taken by the world's largest crude importer.

 

BP, which produces some 2.5 million bpd globally including equity production in Angola, was one of the first western firms to sell into China's booming independent oil market. It regularly ships West African oil to Shandong, the teapot hub.

 

While most western majors market oil from offices in Singapore, BP has a China-based team of four traders, including staff hired away from state oil firms Sinochem and China National Offshore Oil Corp (CNOOC).