Chinese mega-refinery lifts heavy oil prices from the doldrums

The startup of a new Chinese oil refinery is fueling a rebound in heavy crude oil markets just weeks after prices bottomed out. 

China’s state-owned PetroChina, owner of the new plant, is tapping oil supplies from Canada, Colombia and Ecuador after sanctions disrupted access to the sludgy, sulfurous Venezuelan oil it was originally designed to process. PetroChina’s parent, China National Petroleum Corp., took control of the project after Petroleos de Venezuela SA backed out. 

PetroChina committed to take at least 8 million barrels of Canadian, Colombian and Ecuadorian crude that will load next month, people with knowledge of the situation said. Canada’s Cold Lake variety is being offered on the US Gulf Coast at a discount of around $11.50 per barrel to the ICE Brent benchmark, two people said. 

That’s a huge turnaround from earlier this year, when the discount was wider than $20 in the export market. Colombia’s flagship crude, Castilla, was sold for discount of $12 for cargoes loading in May, a tighter differential than April’s minus-$14. 

The end of refinery maintenance season in the US and scarcer supplies from Venezuela and Ecuador also are supporting prices, people said. 

PetroChina’s Guangdong Petrochemical complex in Jieyang, which started trial runs in October, now is in the process of ramping up. It can process 400,000 barrels a day and can run entirely on heavy oil.