SINGAPORE/LONDON: African crude oil sales into China, the world's biggest importer, have stalled as buyers wait for spot sale offers from top supplier Angola to fall in line with slumping benchmark prices, refining and trading sources said on Monday.Chinese refiners are in the market for Angolan imports in August, but they have been slow to finalise orders in the hope that the slide in Brent crude oil futures will lead to weaker cargo prices, industry sources said. In late April Brent was almost 20% below its 2018 peak.
At the same time, Brent backwardation - a market trend where prices for prompt delivery are higher than those in future months - has narrowed sharply - a sign that spot premiums may weaken soon, the sources said.
Brent's premium to Dubai quotes also fell below $3 a barrel on Monday, down from the highest since May 2018 recorded last week. That makes oil from the Atlantic Basin more affordable than those from Russia and the Middle East.
"Buyers are tending to wait in a downward (price) cycle while crude stocks remain high in Shandong," said one trader with an independent Chinese refiner. Shandong is home to most of China's independent refiners, known in the trade as 'teapots'.
The trader and the other industry sources interviewed by Reuters declined to be named as they are not authorised to speak to media.
Chinese independent refiners account for a fifth of the country's crude imports, and have increased imports by about 300,000 barrels per day (bpd) in the first four months this year compared with the same period in 2018, up to 2.15 million bpd, Beijing-based consultancy SIA Energy's Seng Yick Tee said.
"The slowdown in imports in the third quarter is probably due to high imports for stockbuilding in the first half this year," Tee said.
China's slowdown in orders is now starting to impact prices for Angolan cargoes loading in July, the sources said.
"What goes up must come down," another Chinese buyer said.
"The differentials are too high, the backwardation is too intense, the first draft of price offerings we saw was certainly not positive and the increased product prices just don't make imports profitable."
Angolan state oil company Sonangol was reported to have dropped cargo prices by around 20-30 cents a barrel from initial asking prices, though around 20 cargoes still remained unsold, traders said. Sonangol's company policy is not to comment on commercial matters.
One West African crude seller said: "The market was overdone for West African (oil). Sellers asked ever higher indications without necessarily getting (deals) done."
Still, there could be price support for heavier grades such as Angola's Dalia as well as Congolese Djeno crude, suitable replacements for Venezuelan and Iranian crude currently under U.S. sanctions, traders said.
July-loading Dalia was being offered at around $2 above dated Brent. That matched prices for last month, but represented a hefty $7 increase from two years ago.