SINGAPORE: Sinopec, Asia's largest refiner, plans to cut the volume of Saudi crude oil it loads in June by 40 percent for a second month, after the price of the kingdom's key grade rose to a near 4-year high, said an official from trading arm Unipec.
Saudi crude remains overvalued compared with other Middle East grades, the official said on Thursday, declining to be named due to company policy.
The Unipec executive declined to elaborate on how the 40 percent cut would be implemented, and Saudi Aramco could not be immediately reached for comment.
The cut to Saudi supplies could continue for a third month in July, other Unipec officials said late in April, as they expect Saudi prices to remain elevated.
It is not clear if Unipec can cut the volumes by 40 percent without paying a penalty. Crude contracts with state-owned Saudi Aramco are normally done on a take-or-pay basis, with adjustments allowed only in a plus or minus 10 percent range.
The supply cut for May-loading cargoes will coincide with planned refinery maintenance for Sinopec, but the Unipec official said all refineries will resume operations in July.
"Peak turnarounds will be over by then so they are likely to need the crude, but if April imports also come in at around 9.4 million barrels per day, domestic crude stocks will also give them some buffer," Michal Meidan, Energy Aspects analyst said.
Beijing-based consultancy SIA Energy said Sinopec's imports from Saudi Arabia dropped to 730,000 barrels per day (bpd) in the first quarter, from 845,000 bpd in the same period a year ago, while demand for Saudi oil from other Chinese state refiners grew by 73 percent or 120,000 bpd year-on-year.
Companies that increased Saudi crude imports include PetroChina, CNOOC and China North Industries Group Corp (Norinco), which all brought new refining capacity online in the second half of 2017.
"As China largest refiner and as its company profitability is heavily reliant on the refining segment, Sinopec is very sensitive to feedstock prices," SIA Energy's Seng Yick Tee said.
The consultancy said Sinopec has also cut crude imports from Angola and Russia in the first quarter, probably because they were also overpriced.
In contrast, Sinopec increased crude imports from the United States, Brazil, Iran, Colombia and Iraq, Tee said.
"I think it's not only an issue of crude economics (for Sinopec). If Saudi increases prices, other Middle East producers will follow," said a Singapore-based oil trader.
Saudi Aramco on Wednesday raised the June price for its Arab Light crude to Asia to a premium of $1.90 a barrel to the Oman/Dubai average, the highest level since August 2014.
Saudi prices set the trend for Iranian, Kuwaiti and Iraqi prices, affecting more than 12 million bpd of oil bound for Asia.
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