Vietnam SSB May Wait For Oil Prices To Cool Before Closing African Crude Futures Supply Agreements

Strong points

BSR’s Dung Quat successfully tests Nigerian and Libyan sweet crudes

But overheated oil prices, BSR will wait for the right time to enter trade

BSR’s petroleum product production target may be insufficient due to COVID-19 resurgence

Vietnamese state-owned Binh Son Refining and Petrochemical, or BSR, is increasingly interested in African crude after its Dung Quat refinery successfully tested various light sweet grades produced in the region, but the company may not not rush to sign forward supply agreements due to strong firm prices and fragile domestic demand for fuel.

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BSR, the operator of the 148,000 bpd Dung Quat refinery in central Vietnam, is under pressure to find a steady flow of raw material supply from external sources as the supply of various grades of domestic crude that mainly feed the plant is running out.

The state-owned company said on July 14 that it had successfully tested Nigeria’s Forcados crude and Libya’s Bu Attifel crude at Dung Quat.

In the Forcados test from May 12 to 20, 40% of the crude was blended with Vietnamese crude at the CDU capacity of 105%.

After the successful test, BSR said Forcados could become one of the potential crudes to replace the domestic sweet Bach Ho crude, as the Nigerian grade can deliver high output of 230,000 b / d with high quality and low grade. sulfur (0.17%). Bu Attifel’s share in a test carried out in June was 30%.

Successful testing of the two African crudes, as well as four other grades tested earlier in the year, including Nigerian Qua Iboe and Angolan Cabinda, will allow BSR to meet its goal of increasing the share of imported oil to 20. % of the 7 million tonnes expected. of crude for Dung Quat this year, the company said.

However, BSR may have to wait for international benchmark oil prices to cool before entering into forward supply contracts with African suppliers and a major oil company with African stocks as current prices appear to be overheated. a trading account management source at PetroVietnam told S&P Global Platts. . BSR is a subsidiary of PetroVietnam.

Vietnam is also very sensitive to dollar outflows and foreign currency reserves, the source added.

“It is too risky to engage in steep forward deals in times of high uncertainty like the current pandemic period … furthermore, prices are overheated and the time will come for a better entry as OPEC will return more barrels. in the market, while Iran’s supply could also come back eventually, ”the source said.

With ultra-low interest rates and aggressive monetary easing policies expected to continue to support asset, commodity and energy prices at large, Asian end users and consumers are particularly hopeful that the ‘OPEC + will at least play its role in controlling sharply inflated oil prices for the benefit of global consumer sentiment and recovery in demand.

Eleven major Asian refiners and trading companies, including PetroVietnam, interviewed by Platts ahead of the July 1 OPEC + meeting, had hoped the producer alliance would continue to phase out its production cuts and hand over at least $ 1million. barrels per day on the market in August-September. amid the recent rise in oil prices.

OPEC and its alliance struck a deal on July 18 to ease production cuts by 400,000 bpd each month from August, but many Asian refiners and traders believe the pace of the rise in supply is slower than desired.

Fragile domestic demand for oil

In addition to high oil prices, BSR is also taking a cautious stance in supplying raw materials to refineries due to the fragile outlook for the country’s oil demand.

BSR had initially planned to increase its production of petroleum products in 2021 by 9.6% to 6.497 million tonnes, but it is widely expected to fall short of target as domestic demand for fuels is set to weaken in the third quarter as the country struggles to control the continued spread of a new wave of coronavirus, industrial sources and Hanoi-based fuel distributors told Platts.

The concerns come as the country’s business hub, Ho Chi Minh City, announced in late June that social distancing measures would be extended indefinitely as the country works to contain a new spike in cases amid the crisis. discovery of several new clusters in the city.

The number of new cases in Vietnam skyrocketed in May after pockets of infection were discovered in the Bac Ninh and Bac Giang regions, which are home to large factories producing consumer goods for export.

Since then, Vietnam’s COVID-19 cases have remained on an upward trend, with the number of new infections reaching a record 4,710 on July 17, data from Johns Hopkins University showed.

The impact of movement restrictions on driving activity has been severe, with activity dropping 38% below benchmarks on July 17, mobility data from Apple showed.

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