Asia relying on US crude to replace Middle East supply
Buyers in Japan shouldered the costs of purchasing May-loaded cargo from the United States earlier in the month, while South Korean, Singaporean and Thai processors were also among customers, traders familiar with the matter said. According to traders, at least 60 million barrels of grade have been purchased from the US Gulf for loading next month, in line with the April loading calculation. This was the highest level in the last three years.
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The war in Iran and the near closure of the Strait of Hormuz, now in its seventh week, have halted the flow of crude oil to Asia and thrown the refining industry into turmoil. The United States and Iran are considering extending the ceasefire for two weeks, but the blockade on both sides is still in effect. The fuel production crisis in Asia is already having an impact on daily consumers and the wider economy; Some governments moved to curb demand, airlines grounded flights and shortages threatened the industry.
Most U.S. oil bound for Asia will be loaded onto very large crude carriers known as VLCCs, carrying about 2 million barrels of crude, with some smaller tankers also used. These include Aframax tankers, which can bypass the Panama Canal for a faster journey across the Pacific Ocean to East Asia.
“We don’t see one vessel available for charter VLCC vessel supply over the next two weeks compared to the usual 90-day average of four VLCCs,” said John Coleman, crude analyst at energy intelligence firm Sparta Commodities. “This is likely a leading indicator of strong bookings from the US Gulf Coast and impending export growth.”
U.S. government data showed oil exports, including crude and refined products, hit a record 13 million barrels per day last week. In this, crude oil shipments exceeded 5 million barrels per day, reaching its highest level since September.
READ MORE: US Oil Exports Set Record As War Continues Hunt For Supplies
“It’s like every ship owner is thinking right now: OK, I can’t load in the Middle East Gulf, I think the only area that has alternatives is the Atlantic Basin,” said Rohit Rathod, senior oil market analyst at Vortexa. “Even if the conflict were to end tomorrow, we expect U.S. Gulf Coast exports to remain high in the coming months.”
Most of the purchases of 60 million crude oil were made earlier in the month, traders said. They said deals in recent days have slowed as prices for U.S. oil delivered to Asia have risen to exceed Middle East prices, making shipping less economical.
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Asian countries are also ordering more of Alaska’s North Slope crude, a higher-sulfur grade with quality similar to Persian Gulf crudes, traders said. Earlier this month, Alaskan North Slope oil traded at record levels, commanding a premium of up to $10 per barrel over global Brent oil.
The premium for Mars, a key U.S. sour oil grade that buyers use to replace Middle Eastern barrels, rose above $15 a barrel over the benchmark West Texas Intermediate in North America in April; This is an all-time high.
Still, US oil remains attractive despite high prices. “U.S. crudes are some of the few non-Hormuz bound grades currently showing positive margins to Asia on paper,” said Sparta’s Coleman.
Heavy purchasing in Asia has pitted refiners in the region against global rivals; Some volumes purchased for Asia were initially reserved for processors in Europe. According to official data, the Netherlands is the largest buyer of US crude oil, while South Korea ranks second.
Some Asian refineries are continuing their efforts to obtain oil from the Middle East. Ship brokers and traders report that shipments to be loaded into the Persian Gulf, mostly from Indian state-owned refineries, represent attempts by buyers to test access to the Middle East. However, supplies from the Persian Gulf are expected to remain low until Strait of Hormuz ship traffic is allowed to resume.
Meanwhile, America’s oil purchases from the Middle East, home to the world’s largest refinery fleet, are decreasing. U.S. imports of Saudi Arabian oil fell from nearly 800,000 barrels per day to just under 250,000 barrels per day in February. The US looked to Latin American grades to stem the supply from the Middle East.
