Helter Skelter - Changes Afoot in Sourcing of Crude for Asian Refiners

Production cuts by Saudi Arabia and other OPEC producers have had a profound effect on Asian refiners’ crude oil procurement by opening the door to more U.S., Canadian and North Sea crude deliveries to the Far East and South Asia. Of the four major Asian refining countries, China has seen the largest drop in imports of East of Suez crude, which includes oil produced in the Middle East, the Asia-Pacific region, Australasia and far-east Russia, but India, Japan and South Korea have experienced declines as well. What’s going on? And what does it mean for Atlantic Basin crude producers? Today, we discuss recent changes in global crude price differentials and Asian crude import slates, which include more imports from the U.S.

OPEC and 10 non-OPEC (NOPEC) countries are now in the eighth month of crude oil production cuts aimed at bringing worldwide oil supply and demand into balance and, of course, at helping to prop up crude prices (see Won’t Get Fooled Again for more on the initial six-month agreement, which has since been extended). Producer compliance with the production cuts hasn’t been perfect — according to the latest International Energy Agency (IEA) data, OPEC compliance slipped to 78% in June from 95% in May, while NOPEC compliance edged up to 82% — and rising production in U.S. shale plays has partially offset the effect of OPEC/NOPEC cuts on the global supply/demand balance. But crude prices haven’t tanked and in fact are generally within a buck or two of $50/bbl (all in U.S. dollars), depending on the benchmark. Not bad, considering where prices could be if global supply were far higher.

This blog was written by FGE’s Den Syahril Mohamed.  FGE is a preeminent global oil and gas consultancy which provides leading independent research, analysis, consultation, and advisory services to a large and diverse client base across the world.  In 2015, FGE and RBN formed a strategic alliance to expand the client and consulting services of both companies.  FGE is based in London and operates offices in Singapore, Tokyo, Beijing, Dubai, Hawaii, and has satellite offices in California and Mumbai.  For more information about FGE’s products and services, click here.

OPEC and NOPEC production cuts have also been affecting crude oil sourcing by Asian refiners. To varying degrees, the four largest refining countries in Asia — China, India, Japan and South Korea — traditionally have been heavily reliant on East of Suez crude, and particularly on crude from the Middle East. Production cuts have underpinned strong Dubai crude pricing (the Persian Gulf benchmark crude price) and tightened heavy crude supplies to Asia. The dated Brent/Dubai price differential has stayed below $1/bbl for almost all of this year (2017; blue line in Figure 1), providing attractive economics for shipping Atlantic Basin crudes to Asia.

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