CRUDE OIL MARKETS
ADA TAIB
Senior Editor,
Oil Markets
PACIFIC
The rapidly shifting balance in the
global crude market has seen
new export flows emerge, and the
destination is increasingly Asia.
Buyers in the region are finding
themselves in an unfamiliar
position – that of price maker
rather than taker.
GRAVITY
A mere $300,000 upgrade of the
single-point mooring at Petrovietnam’s
Dung Quat refinery in August of this
year has paved the way for the stateowned company, once reliant solely on
domestic crudes, to expand its pool of
potential sellers.
deadweight tons compared with 110,000
dwt previously, by booking a Suezmax
tanker in August to deliver 1 million
barrels of Azeri Light crude, then
followed that up in September by
booking 1 million barrels of West
African N’Kossa crude.
It promptly took advantage of the new
mooring system, which can
accommodate tankers of up to 150,000
Vietnam’s purchases are a reflection of
the growing confidence among Asian
refiners to take part in the wider global
crude marketplace, moving away from
being simply price-takers. Instead, they
are becoming price-makers,
demonstrating increasing sophistication
in their strategies to secure crude and
requiring sellers to adjust prices to their
needs as they increasingly diversify their
crude supplies away from domestic
production or traditional suppliers in the
Middle East to areas such as West Africa,
the former Soviet Union, and even as far
away as Latin America.
Courtesy: iStock.com
Busy: the Strait of Malacca.
32
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DECEMBER 2014
“Every supplier in the global market is
focusing on Asia at the moment,” said
Miswin Mahesh, an analyst with Barclays
Bank, at a crude forum in Singapore in
October. “Everyone is fighting for a
market share in Asia and that’s because
CRUDE OIL MARKETS
half of the [oil] demand growth that
we’re seeing is set to come from Asia.”
NIGERIAN CRUDE INTAKE IN B/D
Through August this year, Asia’s four
largest crude consumers – China, India,
Japan and South Korea – have
collectively bought around 42% more
Nigerian crude compared with JanuaryAugust 2013, according to an analysis of
import data monitored by Platts.
China
India
Japan
S Korea
TOTAL
China, already a large buyer of Angolan
crudes taking some 800,000 b/d on
average, has started to show an interest in
Nigerian crude. Over January-August this
year it imported 41,000 b/d, more than
doubling compared to the corresponding
period a year ago, while India imported
37% more Nigerian crude over the same
period, averaging just under 367,000 b/d,
according to data from ship brokers
compiled by Platts.
South Korea’s overall imports from
Africa were up more than four-fold in
the first eight months of this year to an
average of around 66,848 b/d, according
to official data from state-run Korea
National Oil Corp.
There has also been a greater flow of
crude imports from Latin America to
Asia. China’s imports from Venezuela
and Colombia in the first nine months
of 2014 were 17.7 million metric tons,
or about 475,000 b/d, an increase of
18% from the same period in 2013,
according to customs data. India’s
imports from Latin America, meanwhile,
rose 9% in January-August 2014 versus
the year-ago period to around 758,000
b/d, according to oil ministry data.
Japan increased its crude imports from
Latin America by 20% to 37,000 b/d in
2013, and a threefold increase from
Jan-Aug ’14
Jan-Aug ’13
Change (%)
41,000
367,000
4,208
1,724
413,932
20,000
267,000
3,913
0
290,913
105
37
8
NA
42
LATIN AMERICA CRUDE INTAKE IN B/D
China
India
Japan
S Korea
TOTAL
Jan-Aug ’14
Jan-Aug ’13
656,000
758,091
41,796
18,100
1,473,896
540,000
712,000
32,478
0
1,294,478
Change (%)
19
6
29
NA
14
The Indian and Chinese figures have been rounded off to the nearest ‘000 for simplicity.
Sources: China customs data, Japan’s METI, South Korea’s KNOC, India shipping fixtures from brokers and Platts cFlow.
2010, according to trade ministry data.
Japanese refiner Cosmo Oil imported
about 1 million barrels of Isthmus crude
from Mexico in February this year, the
first import of Mexican oil to Japan since
January 2004.
North Sea crudes have also increasingly
made their way to Asia. South Korea
– the world’s fifth-biggest importer of
crude – has been a regular buyer of
Forties crude since the implementation
of a free trade agreement with the EU in
2011 that allows refiners to import crude
oil from countries such as the UK
without paying a 3% duty. Platts
estimates a total of 25 million barrels of
Forties loaded from the Hound Point
terminal in Scotland for South Korea in
2013, increasing slightly from around 24
million barrels in 2012.
Chinese purchases of North Sea crudes
are also becoming a regular occurrence.
One VLCC from Hound Point arrived
in Tangshan in northern China early in
September, following on from a cargo DECEMBER 2014
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33
CRUDE OIL MARKETS
in July and a few cargoes earlier in the
year. Prior to this year, the only previous
Forties fixtures to China were in June
2012 and September 2013, according to
Platts ship tracking software cFlow.
North Slope crude since 2004. ANS,
which is typically sent to refiners in
California, Washington and occasionally
Hawaii, does not fall under US laws
restricting exports. An increase in the
volumes of Bakken crude being railed to
Pacific Northwest and California refiners
has depressed demand for ANS in those
regions.
Also in September, Unipec, the trading
arm of China’s Sinopec, booked a total
of three VLCCs of Russian Urals crude
to bring to Asia, a volume that one
industry source described as
“unprecedented” for such an arbitrage.
Government directed
South Korea’s purchases of North Sea
and Latin American crudes have been
prompted by government efforts to
encourage refiners to diversify supplies,
And in October, South Korea took
delivery of its first cargo of US Alaska
$/BARREL
8
Dubai EFS Spore Mo01
Dubai EFS Spore Mo02
6
5
4
3
2
1
0
Aug-11
Jan-12
Jun-12
Jan-13
Jun-13
Jan-14
Jun-14
Source: Platts
AVERAGE QUARTERLY CRUDE IMPORTS TO CHINA, SELECTED SOURCES
MILLION B/D
15
Average of Africa
Average of South America
Average of Europe
Sum of Middle East
12
9
6
3
2007
2008
2009
Source: Platts
34
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DECEMBER 2014
2010
2011
Under measures announced in July, the
government is providing subsidies to
refiners to import crude oil from the
Americas, Africa and Europe to cover the
difference in freight costs for those
longer journeys.
Other forces are also shaping Asian
refiners’ shift away from their
traditional Middle East suppliers,
notably changes in North American
import patterns that have increased the
supplies available to Asia. The explosive
growth in output of North American
shale oil in recent years has seen the
country’s appetite for crude imports
plunge, leaving barrels that would
typically have gone to the US looking
for alternative destinations.
BRENT/DUBAI EXCHANGE OF FUTURES FOR SWAPS
7
reducing dependence on the unstable
Middle East region. Around 85% of
South Korea’s imported oil comes from
the Middle East and most of it is
transported through the Strait of
Malacca, a key shipping chokepoint that
is plagued by piracy.
2012
2013
2014
Reflecting its growing self-sufficiency,
US crude oil imports have declined 24%
from a peak of 10.13 million b/d in
2005 to 7.73 million b/d in 2013, US
Energy Information Administration data
shows. Most prominently, US crude
imports from Nigeria have fallen by
78% from 1.08 million b/d in 2005 to
239,000 b/d in 2013, while its Mexican
crude imports declined by 45% from
1.56 million b/d in 2005 to 850,000
b/d in 2013.
Across the Atlantic, pressure from falling
demand and competition from new
capacity in the Middle East and US oil
products exports have resulted in the
closure of 14 refineries in Europe since
CRUDE OIL MARKETS
2007, bringing the total number of
refineries to 87 in 2013.
AVERAGE QUARTERLY CRUDE IMPORTS TO INDIA, SELECTED SOURCES
b/d
2,000,000
In Russia, the completion of the 4,200
km East Siberian-Pacific Ocean (ESPO)
oil pipeline that links Russia to the
Asia-Pacific markets in 2012 opened a
fresh supply stream to compete with
Middle East grades for Asian refiners’
business. Currently, the market sees up to
25 cargoes of 100,000 mt, equivalent to
around 18.25 million barrels (600,000
b/d), of ESPO crude being offered into
the spot market each month, which is
largely soaked up by Asian refiners.
Buyers’ market
The influx of arbitrage barrels comes at a
time when Asian suppliers are also
ramping up their crude production.
With a smorgasbord of crude for refiners
to choose from, the increasingly
competitive market has also begun to
take its toll on Asia-Pacific crudes.
Following Vietnam’s first purchase of
West African crude in September,
state-owned trader PV Oil offered some
900,000 barrels of locally-produced Bach
Ho crude for sale. Bach Ho is rarely seen
on the spot market as it is typically all
taken by the Dung Quat refinery, but
the economics clearly worked to sell the
higher-value regional grade and buy
lower-priced arbitrage barrels.
As Asian refiners have found greater
supply options, traditional suppliers of
crude into the region have come up with
various strategies to retain their share of
the Asian market, notably signing direct
supply agreements. In August, state-run
Kuwait Petroleum Corporation signed a
new 10-year deal with China’s Unipec,
to deliver up to 300,000 b/d of crude,
up from 160,000-170,000 b/d in the
supply contract that had just lapsed. The
Average of Africa
Average of South America
Average of Europe
Average of Asia Pacific
1,500,000
1,000,000
500,000
0
2012
2013
2014
Source: Platts
deal, the biggest-ever contract in KPC’s
history, secures Kuwait’s position as the
third-largest crude oil supplier to China.
Apart from supply agreements, Middle
Eastern countries, including Saudi Arabia,
have slashed their official selling prices in
recent months, a move seen by analysts as
an attempt to maintain their market
shares. In October, Saudi Aramco cut the
official selling prices for its Asia-bound
crude lifting in November for the fourth
month in a row, while Kuwait and Iraq
also priced their crudes at the widest
discounts to Arab Medium in years.
“Asia has basically become a dumping
ground for every single barrel from the
rest of the world. And no wonder we have
a price fall from the Persian Gulf, because
they have to fight for their market share
because they are losing it, because every
other barrel is coming to Asia,” said Adi
Imsirovic, General Manager at
Clearsource Commodity Services.
Asia the price maker
Asia’s increasing presence in the
international crude marketplace will
impact how crude benchmarks are being
priced, according to market observers. As
Asian refiners continue to soak up crudes
from around the globe, the region’s role
as a price-taker has evolved into one of a
price-maker.
“At times when Asia has to heavily
import from other regions, you can see
the strong impact on the Brent-Dubai
EFS and Dubai becomes much stronger.
It happened first in 2010 and you can
see the narrowing of the Brent-Dubai
EFS that exists in this period since we
first saw Asia become a major importer
of crude from other regions ... For me,
Asia is already the price-maker,” said
Richard Gorry, a director at consultancy
JBC Asia.
The Brent-Dubai Exchange of Futures for
Swaps (EFS) is an indicator of the relative
strength of the Dated Brent crude
benchmark against medium sour Dubai
crude, the Middle Eastern benchmark.
“From a pure pricing point of view, we’ve
got marginal barrels coming into Asia.
And it’s the marginal barrels that set the
price. So in other words, we’ve got Asia
directly or indirectly setting the price for
global crude oil. I think that is a big deal,
that is a big change,” said Imsirovic. DECEMBER 2014
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