China eyes Caribbean fuel oil market now, crude later

y Robert Campbell and Aizhu Chen

MEXICO CITY/BEIJING (Reuters) – PetroChina’s move to take a big position in Caribbean oil storage should give the state oil company immediate muscle in the region’s residual fuel trade and open up longer-term options for crude trading.

PetroChina’s assumption this week of Saudi Aramco’s lease on 5 million barrels of oil storage capacity at the strategically located Statia terminal in the Caribbean signaled its intent to build a global oil trading network.

The NuStar Energy LP Statia terminal on the Dutch Caribbean island of St Eustatius can handle the largest oil tankers. It is just a few days sail from major U.S. refining and transport hubs on the Gulf Coast.

The Caribbean is growing more important as an oil trading center with the emergence of a possible new sour crude benchmark in the Argus Sour Crude Index. Still, sources say PetroChina’s initial focus probably is on shorter-term marketing goals that will make it a major player in the Caribbean “bunker”, or ship fuel, market.

“It will mostly be used for fuel oil or bunkers but may also be used for crude in the future,” said a PetroChina trading official.

Fuel oil is China’s most widely imported oil product. It is burned in power plants, ships and processed by China’s small privately owned “teapot” refineries.

Venezuela has emerged as China’s biggest supplier of fuel oil as President Hugo Chavez looks to shift the country’s oil marketing efforts away from the United States, even though the Caribbean nation lacks access to Pacific ports.

But the fuel oil market in Asia is becoming more competitive as demand growth eases and traders fight for market share. Analysts say economies of scale are needed to weather the downturn, driving the expansion of regional players into other markets such as the Middle East and India.

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