Premiums for Iraq's Basrah Heavy crude grade fell sharply this month as Chinese demand for the grade dimmed on lower refinery run rates, traders said on Thursday.
A spot tender offering 1 million barrels of Basrah Heavy crude grade by state-owned SOMO was heard awarded at a premium of 90 cents/b to the July OSP on Thursday morning in Singapore.
Last month, a similar tender was awarded by SOMO at a premium of $2.25/b to the Asia June OSP for Basrah Heavy. The buyer was a Chinese end-user.
Several Chinese end-users surveyed by S&P Global Platts said they had not been awarded the latest tender for the July loading cargo.
"Not [awarded] to any of the Chinese buyers," one crude trade with a Chinese firm said.
"We didn't get it [the tender award]," added a second trader with a different Chinese company.
"The tender award was around 90 cents/b but we had offered much lower," the second trader added.
Crude traders dealing in Basrah deals to China said lower refinery run rates were largely the reason behind the sharp drop in demand for the Iraqi sour crude.
"Basrah Heavy premiums are dropping because run cuts are not supporting [the previous levels]", a Singapore based trader said on Thursday.
Chinese refineries, especially independent small scale operations, have reduced run rates in recent month as domestic inventories soar while profit margins on refined products have fallen.
Earlier this month, S&P Global Platts calculations showed China's implied crude oil stocks at the end of May were 33.12 million barrels higher compared with the end of April.
Meanwhile, the country's crude oil imports were 9.51 million b/d in May, falling 11% or over 1 million b/d from April's record high of 10.68 million b/d, preliminary data from the General Administration of Customs showed as of June 10.
