Asia’s crude oil imports remain low, but Middle East regains share: Russell

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LAUNCESTON – Despite crude oil prices rebounding to three-year highs, there is little evidence that demand in Asia’s major importing region is picking up.

In fact, imports to the region fell in September from the previous month, as high prices and economic disruptions from the coronavirus pandemic continued to affect fuel demand.

What is the first evidence is that the main producers in the OPEC + exporter group are regaining lost market shares due to their previous production cuts, as they increase their production and reduce their official selling prices. .

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Asia’s crude imports were 22.99 million barrels per day (bpd) in September, according to Refinitiv Oil Research, up from 23.24 million bpd in August and just above 22.61 million bpd July.

China, the world’s largest importer of crude, imported 9.6 million barrels per day last month, up from 10.53 million barrels per day in August, according to ship and port tracking data from Refinitiv. .

The weakness in September imports is most likely a reflection of the high Official Selling Prices (OSP) for Middle Eastern qualities that prevailed at the time the shipments arriving in September were reportedly organized.

In addition, the lack of quotas for importing crude and exporting products may have limited purchases by independent Chinese refiners, which account for about a third of its oil demand.

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September arrivals were said to have been booked around June and July, and it should be noted that since then, major Middle Eastern exporters have decided to scale back their PSOs, as well as increase production in accordance with an OPEC + group agreement to add 400,000 bpd each month from August to December.

Saudi Arabia, the world’s largest crude exporter, lowered its OSP for its benchmark Arab Light grade by 40 cents per barrel to Asian customers for November loadings, at a premium of $ 1.30 per barrel per barrel. compared to the regional benchmark, the Oman / Dubai average.

This was the second month in a row that the OSP was reduced, and the premium for Arab Light has now fallen by $ 2.60 per barrel over the past two months, after being set at $ 3 per barrel for loaded cargoes. in September.

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This reduction in the Saudi OSP, which was largely offset by other key Middle Eastern exporters such as Kuwait and Iraq, was followed by the announcement that Saudi Aramco, the oil giant controlled by the State, will supply additional crude to at least three Asian buyers in November, while reaching full contract volumes for four more.

Aramco appears to be keen to keep its oil competitive in Asia through a combination of lower prices and increased supply, striving to gain market share amid stagnant aggregate demand in the region.

BRENT RALLY

The rise in the price of global benchmark Brent futures, especially against Oman’s Dubai Mercantile Exchange contracts, is an additional incentive for Asian buyers to buy more Middle Eastern crude.

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Brent futures closed at $ 82.39 a barrel on Monday, the highest close since October 10, 2018, while Oman contracts closed at $ 81.66, also a three-year high .

It might not seem like a big difference, but even a premium of 73 cents a barrel can quickly run into the millions of dollars, given the large volumes of crude purchased each month.

Perhaps a more relevant measure is the Brent-Dubai swap exchange , which measures the difference between the price of Brent and the price of physical oil in Dubai.

At Monday’s close, Brent was showing a premium of $ 4.23 per barrel against Dubai, down from the recent high of $ 4.41 on October 5, but still well above the 2021 low. of 70 cents on January 19.

The higher price of Brent should discourage Asian buyers from taking cargo that is priced against the benchmark, such as those from West African producers in Nigeria and Angola.

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The sharp increase in the US benchmark West Texas Intermediate crude contract, which closed Monday at a seven-year high of $ 80.52 a barrel, should also discourage imports from the United States.

U.S. exports were hit by production disruptions in the Gulf of Mexico from Hurricane Ida last month, with data from commodity consultants Kpler showing lower shipments to Asia in recent weeks.

Kpler evaluated just 750,000 barrels of US crude for Asia in the week starting October 4, none the week before and 3.25 million barrels in the week starting September 20.

In contrast, in the four weeks leading up to Ida, U.S. exports to Asia averaged 6.52 million barrels per week, according to Kpler.

(Edited by Robert Birsel)

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