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Asia shrugs off Saudi crude pipeline shutdown as bigger impact seen for Europe

Asian refiners shrugged off the latest shutdown of Saudi Arabia’s East-West oil pipeline as the companies bring in vast majority of their term Saudi crude barrels via Persian Gulf waters, though the trade flow disruption in the Red Sea could shake the prices of cargoes bound for Europe, refinery sources said Wednesday.

Saudi Arabia said Tuesday that it had shut a key pipeline that connects production fields in the east to distribution on the Red Sea, after what it called a “terrorist and sabotage act,” in the latest sign of rising tensions in the Middle East.

The East-West Pipeline to the Red Sea has a nameplate capacity of about 5 million b/d, with current movements estimated at about 2 million b/d.

Also known as the Petroline, the 1,200-km pipeline runs from Abqaiq to the Yanbu Port, where it feeds export terminals and refineries on the Red Sea.

Major refiners in Japan, China, South Korea and Thailand, however, typically lift their term Arab Extra Light, Arab Light, Arab Medium and Arab Heavy crudes from Ras Tanura oil terminal in the Persian Gulf, refiner and trade sources told S&P Global Platts.

“The port of Yanbu and the Red Sea route would hurt the trade flows to Europe not [so much for] Asia,” said a feedstock procurement manager at a South Korean refiner.

“I can’t give you the exact figures but I reckon at the very minimum, 90% of Middle Eastern crude comes to Asia via Persian Gulf waters,” he added.

NO IMMEDIATE IMPACT FOR MAY LOADING
Japanese refiner Taiyo Oil typically loads Arab Super Light crude from Yanbu, but has no planned loadings in May so sees no impact from the pipeline shutdown, a spokesman said.

Taiyo Oil operates the 138,000 b/d Kikuma refinery in western Japan.

Cosmo Oil also said it does not see any impact on its Saudi crude procurement for May loading, an official with parent Cosmo Energy Holdings said, declining to elaborate on its loading port in the month.

The Japanese refiner has not received any communication from Saudi Aramco on whether there is any impact on its May-loading program following the pipeline shutdown, the official added.

A spokesman for Idemitsu-Showa Shell said the companies are still assessing impact from the pipeline shutdown for their May loadings of Saudi crude. Idemitsu-Showa Shell also declined to say whether the companies have any Saudi crude loading from Yanbu in May.

ARAMCO OSP FOR EUROPEAN BUYERS
Asian refinery and trade sources noted that any further disruptions in Saudi crude flows in the Red Sea could potentially impact the next round of Saudi Aramco official selling prices for cargoes bound for Europe.

“Either Aramco may consider factoring in maritime safety risks and offer some sort of discounts to European buyers … or perhaps the supply disruption could provide an excuse for a price hike,” said a sour crude trader based in Singapore.

Earlier this month, Aramco raised the OSP differential of its Arab Heavy crude for loading in June and bound for Northwest Europe by 50 cents to a discount of $3/b to ICE Brent, the highest since November 2009 when it was at a discount of $2.80/b to ICE Brent.

The company also raised the OSP differentials for most of its crude grades loading in June and bound for the Mediterranean, lifting its Arab Extra Light OSP differential by $1.00/b to a premium of 80 cents/b to ICE Brent, and its Arab Light crude by 90 cents/b to a premium of 30 cents/b to ICE Brent
Source: Platts

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