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Vietnam to halt term Bach Ho crude supplies to Asia
Vietnam will halt term exports of its flagship Bach Ho crude next quarter as it diverts supplies to its first refinery, further tightening the Asia-Pacific market, sources said on Friday.
Besides term barrels, state oil marketer PV Oil has sharply reduced spot volumes of Bach Ho, pushing up differentials of other Vietnamese as well as similar alternative regional and African light sweet grades.
Output of Bach Ho, whose crude used to be a major regional export grade, is declining and most existing supplies will be channeled to the 140,000 barrels per day (bpd) Dung Quat Refinery, Vietnamese officials said.
Vietnam, Southeast Asia’s third-largest crude oil producer after Indonesia and Malaysia, will export just 40,000 bpd of Bach Ho this year, down from 155,000 bpd in 2008 and 240,000 bpd when it was at its peak after production began in the 1980s.
“They’re saying the supplies will stop starting in July,” a source said.
When it renewed term contracts in February for Bach Ho supplies to be lifted between April and September, PV Oil alerted its customers that it could reduce short-term exports in the third quarter.
PV Oil has sold just 250,000- 300,000 barrels of May Bach Ho crude via spot tender since signing term contracts for the second and third quarters.
The company offered between 400,000 and 1.15 million barrels of Bach Ho via spot tenders every month from August to December 2008.
The cut in both term and spot Bach Ho volumes has forced lifters to seek alternative crudes and pushed up differentials of other Vietnamese grades, traders said.
“This was as expected, and this is one of the reasons Vietnam spot crudes traded at higher differentials,” said a trader who used to buy Bach Ho.
“Those term lifters will have to seek alternatives, such as other Vietnamese crudes, or African crudes, such as Nile Blend, and help support those markets,” the trader added.
Falling supplies
Vietnam has sold via tender July-loading cargoes of light sweet Song Doc and Rang Dong grades as well as medium sweet Su Tu Den crude at stronger differentials than for June.
For example, it sold a 300,000- barrel Su Tu Den cargo for July at a premium of around $4.00 a barrel to Minas quotes, an improvement from the $1.30 premium fetched for a June cargo.
Although there are other grades in the region that are similar to Bach Ho, supplies are limited as exports from Malaysia, Indonesia and China are also falling.
“We see fewer Indonesia cargoes offered these days and China has almost stopped offering any cargo,” a trader said.
Malaysia’s crude output has fallen to 550,000 bpd this year from 600,000 bpd in 2008, head of state oil firm Petronas told Reuters this week.
But some traders say, despite tight supplies across Asia, the prices of sweet crudes could come down a little for August-loading cargoes as refinery margins have been falling on higher crude prices, which hit $73 a barrel this week.
Term buyers, including oil majors Shell and Chevron as well as some Japanese firms, agreed in February with PV Oil to set the official selling price of Bach Ho to be lifted between April and September at a premium of $3.96 a barrel to Minas quotes.
Bach Ho, with an American Petroleum Institute gravity of 40.5 and a sulfur content of 0.035 percent, is used in refineries across Asia, from Indonesia to Japan and China.
Bach Ho oil is pumped from a field off Vietnam’s coast by a Russian-Vietnamese joint venture.
The Dung Quat Refinery, which came online in February, produced its first batch of kerosene, 5,000 cubic meters, in May. It will operate at about 70 percent capacity this month and at full steam in August.
thanhnien, reuters
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