Oil demand from Chinese refiners could slow if crude passes $40/bbl

By Florence Tan

SINGAPORE, March 9 (Reuters) - A rise in the price of global benchmark Brent crude above $40/bbl could slow down shipments to China in the second quarter, after imports hit a record in February, trade sources said this week.

Crude imports by the world's second-largest oil consumer have been supported by low prices that have driven stockpiling, as well as buying by a new group of Chinese refiners who have received import quotas over the past nine months.

February imports hit the highest ever on a daily basis, customs data showed on Tuesday.

But trade sources said import momentum has slowed after a $10/bbl gain in Brent crude futures in the past three weeks, and new buyers -- smaller so-called "teapot refiners" -- may choose to draw down inventories or carry out maintenance at their plants.

"Such high outright prices will impact demand," said a source from an independent refiner who declined to be named due to company policy.

"China's crude inventories are very high so we are likely to draw down stocks first and keep a watch on prices."

He added that demurrage costs have also risen for shipments to eastern Shandong province where most of the new buyers are located, because of the recent high demand which has strained port facilities. Such costs could run up to $500,000 for supertankers or suezmaxes, he said.

"It takes 10-15 days to unload at Qingdao and 7-8 days at Rizhao," he said.

A source at another Chinese refiner said the spot discount over three months has narrowed by about $1/bbl for May delivery crude from three months ago, making spot cargoes less attractive.

"We've finished buying for May and are waiting to see if prices will fall before looking at purchases for June," the buyer said, adding that its refinery may undergo maintenance unless China's fuel demand exceeds expectations.

Strong demand from the new Chinese buyers for Russian ESPO has pushed up the grade's spot premiums in recent months, but premiums for April-loading spot cargoes traded last week have dropped about $1 from the previous month.

"I didn't see them buying many ESPO cargoes for April," a trader with a major oil firm said.

A slowdown in China's import demand and peak refinery maintenance season in Asia in the second quarter may weigh on spot prices for Middle East and Asia-Pacific crude when trade for May-loading cargoes starts later this month.

This was especially after some of the Middle East producers raised their monthly prices in the past week to multi-month highs.