Singapore — Short-term sales of crude oil and liquefied natural gas into China almost ground to a halt this week as a coronavirus outbreak slowed economic activity and hurt demand, and buyers pondered legal action to avoid having to honor purchase agreements, trade sources said.
Typically, trade would have revived after the Lunar New Year holiday at the end of January, but China has extended the break into February to try to contain the fast-spreading virus, which has claimed nearly 500 lives.
As a result, commodity supply chains have been disrupted, with shipments canceled or delayed and stocks piling up, especially as mild weather had already slowed heating fuel demand.
China is the world’s largest importer of crude oil, having imported a record 506 million tonnes in 2019, or about 10 million barrels per day, according to Chinese government figures, and recently became the world’s largest importer of liquefied natural gas (LNG).
Spot crude trade into Shandong, home to independent refiners that account for a fifth of China’s imports, is at a halt, three traders said, speaking on condition of anonymity.
“We managed to sell some cargoes even for April arrival (before the Lunar New Year) but this week everything stopped,” a Singapore-based trader said.
Sellers were reluctant to offer cargoes for sale because of concern the buyer might declare force majeure on previous deals, traders said.
Companies invoke force majeure when they cannot meet their contractual obligations because of circumstances beyond their control.
In the liquefied natural gas (LNG) market, some Chinese buyers said they were considering invoking the force majeure clause on imports, although some producers said they had not received any such notices.
Fears of the virus are hampering Energy Transfer LP’s efforts to lock in contracts with Chinese customers to deliver LNG from the U.S. Gulf, the company’s chief executive said at a conference on Wednesday.
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