China's top oil company Sinopec cuts Saudi crude imports
China’s Sinopec will cut its June imports of crude from Saudi Arabia by 40 percent for the second month in a row because of unjustified high prices, an official from the top Asian refiner, Unipec, told Reuters.
Saudi Arabia raised the price for its Arab Light to a four-year high, and according to the Unipec official, the grade is now considerably overvalued compared to other Middle Eastern crudes.
Last month, a Unipec official told Reuters, “Our refineries think these are unreasonable prices as they do not follow the pricing methodology.” Besides Sinopec, a source from another two refineries in northern Asia said they will be cutting their imports from Saudi Arabia by ten percent as oil buyers have a hard time grasping how the Kingdom is calculating the price for its most popular grade.
The price increase came as a surprise to the biggest market for crude in the world. However, it is likely that Sinopec will be penalized for the reduction as the usual sales contracts with Saudi Arabia are on a take-or-pay basis, with leeway of up to ten percent only.
Sinopec imported an average of 730,000 barrels per day (bpd) of Saudi crude during the first quarter, down from 845,000 bpd a year earlier, but imports by other state-owned refiners increased by 120,000 bpd, or 73 percent on an annual basis as they expanded their refining capacity.
This month, Sinopec will carry out regular maintenance across its refineries, so the lower import volumes will not urgently need a cheaper replacement, but the refineries will be back into normal operation by July, and will need more crude.
Saudi Arabia said last year it would reduce the amount of crude it exports to below seven million bpd, and last month the energy ministry reiterated that it is sticking to this target, which could explain the higher prices.