The huge purchases of crude oil made by a Chinese trader has helped raise the price of Middle East oil and spurred oil shipments from other parts of the world into Asia, Bloomberg reported.
Data compiled by Bloomberg last month showed that China National United Oil Co. (Chinaoil) bought at least 7 million barrels of Middle East crude for loading on March.
The report said that the huge purchase was made at a time when the oil supply in the region is shrinking as oil producers, which include Saudi Arabia, control majority of the global output.
Chinaoil's spree has made the value of Middle East crude higher, compared to supplies from other regions which have been under OPEC's deal to reduce production.
With the rise of the Dubai crude benchmark against West Texas Intermediate and Europe's Brent, oil cargos flowed into Asia from areas such as Gulf of Mexico, West Africa and the North Sea.
"Larger importers like Chinaoil can create purchasing strategies based on expected oil demand, taking into account production cutbacks by OPEC and import requirements for strategic petroleum reserves," John Driscoll, the chief strategist at JTD Energy Services Pte, was quoted as saying.
Driscoll has been trading crude and petroleum more than 30 years in Singapore.
"That can trigger a spree and lift Dubai prices against Brent and WTI, leaving the arbitrage window for oil flows from west to east wide open," Driscoll added.
Pricing Assessment and Process
Platts, a unit of S&P Global Inc., uses a price assessment process wherein offers, bids and deals made in a certain period during each day are reported. The data are used for the end-of-day price assessments for various commodities and used as benchmarks for transactions around the world.
"S&P Global Platts' role is to produce robust price assessments that reflect the value of commodities including fuel oil," a spokeswoman for the company said. "It is not our role to regulate trading in the physical markets where we produce price assessments."
For the Dubai crude, Platts used a pricing mechanism that combined the partial cargo deals with 500,000 barrel shipment if the same buyer and seller trade 20 of the 25,000-barrel lots in one month. According to Platts, Chinaoil last month bought 339 out of the 346 partials traded for March.
The company also purchased full cargoes from Abu Dhabi's Upper Zakum oil and Qatar's Al-Shaheen crude, with sellers that included Royal Dutch Shell Plc and Reliance Industries Ltd, Bloomberg data showed. In Aug. 2015, Chinaoil bought a record haul of 36 million barrels.
Meanwhile, Brent premium, which is the benchmark for more than half of the world's crude, dropped to $1.27 per barrel last month while the U.S. West Texas Intermediate fell lower than the Middle East measure, as a result of increased oil drilling in the U.S.
Between December and January, an estimated 33 million barrels of European North Sea crude is set to be shipped to Asia, which was higher compared to the 58 million barrels from January to November last year, according Citigroup Inc.
Data showed that China's crude imports increased to a record average of 7.63 million barrels a day last year.