Sinopec Weighs Output Cuts Due to Freight Rate Surge

October 15, 2019

© Igor Groshev / Adobe Stock
© Igor Groshev / Adobe Stock

Asia's largest refiner, Sinopec, is weighing plans to cut oil imports in December and reduce output at its refineries after a surge in global tanker freight rates hit margins, four sources with knowledge of the matter said.

The cost of shipping crude to Asia has surged in the past two weeks after companies stopped using nearly 300 tankers for fear of violating U.S. sanctions against Iran and Venezuela.

Refining margins have yet to catch up with the jump in freight rates, forcing refiners to absorb the costs for now.

"Refineries are facing strong pressure as spot premiums are high and freight rates have jumped, so it's not economical to import crude," one of the sources said, adding that Sinopec was considering drawing down crude inventories to manage its needs.

A second source said Sinopec was studying whether it could reduce import volumes and see which cargoes from suppliers in the Americas, Europe, Africa and the Middle East it could cut among those due to arrive in China in December.

"The cargoes have been purchased so it's still unsure whether the volume, especially for long-haul cargoes, can be cut," he said.

"Freight rates have jumped to $8-$9 a barrel, up by $7 a barrel. It's eaten up a chunk of the (refining) margins," he added.

In a sign the company was already trying to unload some excess supply in the spot market, Sinopec's trading arm Unipec UK offered four west African crude cargoes last week, but failed to sell them, traders said.

Sinopec declined to comment.


(Editing by Richard Pullin and Clarence Fernandez)

Categories: Tankers


Current News

Wintermar Charters PSV Duo in Indonesia

Wintermar Charters PSV Duo in Indonesia

Gas Explosion Kills 7 in Bangladesh

Asia Pacific’s Decarbonization Bill to Hit $3.5 Trillion in 2040

Asia Pacific’s Decarbonization Bill to Hit $3.5 Trillion in 2040

China Expects Balanced Energy Supply/Demand

China Expects Balanced Energy Supply/Demand

India to Invite Foreign Investment in State-owned Oil Companies

India to Invite Foreign Investment in State-owned Oil Companies

Southeast Asia Bullish on OFS Market

Southeast Asia Bullish on OFS Market

BMT Delivers Real Time Monitoring for Helang FPSO

BMT Delivers Real Time Monitoring for Helang FPSO

Subscribe for AOG Digital E‑News

AOG Digital E-News is the subsea industry's largest circulation and most authoritative ENews Service, delivered to your Email three times per week