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Analysis: Asian crude buyers cheer price competition between OPEC, US

Asian refiners could find plenty of bargain spot crude cargoes in the third-quarter as the recent cuts in major Middle Eastern crude official selling prices, and China’s ongoing threats to impose hefty import duty on US oil could set the stage for intense price competition between North American and Persian Gulf crude suppliers.

Asian refiners have been keeping a close eye on the new round of Middle Eastern crude OSPs this week, with many regional end-users hoping for some discounts after OPEC and its allies had agreed in late-June to increase output by more than 1 million b/d.

Two major producers, Saudi Arabia and the UAE have already delivered price cuts to their Asian customers last week, with both Saudi Aramco and Abu Dhabi National Oil Company trimming their latest crude OSP differentials by $0.18-$1.10/b from the previous cycle, except for the Arab Heavy grade.

Asian trade sources noted that, other Middle Eastern producers including Iraq, Kuwait and Iran will likely follow suit and lower their new monthly OSP differentials this week.

Sources at South Korean refining companies and a Chinese trading firm indicated that light sweet and medium sour US crude suppliers may have to step up efforts to remain competitive in the Asian market, especially due to China’s continued threats to levy a 25% tariff on American energy products.

The US on Friday implemented an additional 25% tariff on $34 billion worth of Chinese imports, and China has hit back with state media citing the General Administration of Customs saying that Beijing will levy 25% tariff on $34 billion worth of US imports of food products and agricultural commodities.

Heavier taxes currently do not apply to US crude oil imports into China, but this could change if the trade war heats up and spreads to other commodities, market sources said.

“The China-US trade war might be shaking the stock markets, but for Asian crude buyers, this may yield positive outcome actually … (US crude sellers) would be desperate to remain competitive in the Asian market,” a trading manager at a South Korean refiner said.

Among the most recent US crude deals concluded in East Asia, CPC Taiwan was heard to have purchased, via spot tender, a total of 5 million barrels of Permian-quality US WTI crude from three different North American crude suppliers.

The Taiwanese end-user could have paid premiums of around $1/b to Platts Dated Brent on a delivered basis, market sources said, adding that light sweet US crude cargoes offered into Asia recently have been quoted at attractive price levels.

“Some of the Eagle Ford recently traded down to 50 cents/b [premium] to Dated Brent. Before that, it was in the $1s/b [premium to Dated Brent] range,” a sweet crude trader at a trading house said.

Although the North American pricing benchmark WTI’s discount against Dubai and Brent crudes narrowed sharply in recent weeks, Asian refiners may continue to favor US crude, if the suppliers continue to offer attractive prices on a CFR basis.

S&P Global Platts data showed that the spread between the front-month WTI swap and same-month Dubai crude swap tumbled to minus $7.74 early last month, but the discount has narrowed to $2.96/b last Friday.

The front-month ICE Brent/NYMEX spread fell as low as minus $11.33/b on June 8, but the spread recovered to minus $6.47/b Friday 0830GMT, Platts data showed.

However, the recovery in North American benchmark price indicator has not translated into higher offers for US grades in the Asian spot market, with various light sweet US crude cargoes remaining competitive against Brent-linked Southeast Asian grades, as well as Dubai-linked Far East Russian and Middle Eastern spot cargoes.

“You’ve got US competition coming left, right, center and landing cheaper. Why buy Malaysian crude [linked to Brent] if your [US crude] alternative is dollars cheaper,” a sweet crude trader at a trading house said, adding that WTI Midland, Bakken and Eagle Ford were some of the US grades being offered into Asia.

Thailand’s PTT has recently made a rare purchase of light sweet US Bakken crude for delivery in late Q3. The company was said to have purchased 600,000 barrels of the light sweet US crude for delivery over July 20-August 10 at a premium of around $1-$1.50/b to Platts Dated Brent on a DES Rayong basis.

In comparison, state-owned Petronas has set the Malaysian Crude Oil OSP differential for June at a premium of $3.90/b to Platts Dated Brent on a FOB basis.
Source: Platts

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