Oil-hungry Asia turns back to Mideast in earnest as flows expand

[SINGAPORE] Oil refiners in Asia are increasingly turning back towards crude from Middle Eastern producers as flows rebound after months of conflict, lessening the need for imports from alternative suppliers including the US.

Refiners in countries including Japan, China and Thailand have either ramped up or restarted buying from the region, including supplies that need to cross the still-contested Strait of Hormuz, according to traders familiar with the matter, asking not to be named discussing commercial matters.

Greater volumes are coming from the United Arab Emirates, Saudi Arabia and Qatar, they said.

The global oil market is showing increasing signs of reverting to patterns seen before the outbreak of war between the US and Iran in February, even as the sides have yet to reach a resolution.

Among them is a sustained preference from refiners in the world’s biggest importing region to rely on the Middle East for cargoes. Slumping prices and weaker freight rates add to the picture.

“How do you break the reliance on your biggest source of crude? There is just not enough slack in global balances to move the needle significantly when it comes to trying to diversify,” said Warren Patterson, head of commodities strategy for ING Groep, referring to Asia’s appetite for Mideast oil.

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In the early stages of the war, flows from Persian Gulf shippers sank as tankers passing through Hormuz were targeted, along with energy infrastructure.

Output has since rebounded, with Saudi Arabia telling Opec its oil output surged in October to one of the highest monthly levels in years.

That means less demand from Asian buyers for stopgaps, including from the distant US.

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At the same time, major Middle Eastern producers have slashed term rates for Asian buyers, as they compete more aggressively for market share.

Saudi Arabia recently cut official selling prices to the region to a fresh six-year low, while the UAE – which quit the Opec cartel in April – has reduced the price premium for December supplies of its flagship grade.

None for Asia

Asian refinery orders for US crude for delivery in November tumbled roughly 50 per cent to 24 million to 26 million barrels, traders told Bloomberg in October.

Separately, Port of Corpus Christi chief executive officer Kent Britton – head of the US largest port – said this week that none of the 40 crude cargoes that departed US Gulf Coast ports last week was bound for Asia.

While shipping costs have slid across the board in recent weeks, those for US-to-Asia voyages have softened more than other routes, showing the revived preference from Asian refiners for Middle Eastern oil.

Daily earnings for very large crude carriers on routes from the US Gulf are down 61 per cent from an October peak, compared with just 24 per cent from the Persian Gulf to East Asia.

In China – the world’s largest oil buyer – nationwide crude imports rose to a seven-month high in October, marked by a recovery in shipments from the Persian Gulf.

The purchases climbed to nearly 42 million tonnes, led by Iraqi cargoes, according to official customs data this week. 

In Japan, refiners including Eneos Holdings and Cosmo Energy Holdings had been among recent purchasers of oil from the UAE, traders said.

Meanwhile, independent Chinese processors have been ordering more prompt supplies from Iraq, they said. India’s imports from the Persian Gulf, meanwhile, have now topped volumes from Russia, according to Kpler data.

For Japanese importers, as long as they “can still get crude from the Middle East, refiners will probably keep buying it”, said Yutaro Nishi, an analyst at the Rakuten Securities Economic Research Institute.

“It varies from country to country, but I don’t think the basic picture is going to change,” the former commodities trader added. “Asia will remain a major market for Middle Eastern crude.” BLOOMBERG