Home / Commodities / Freight News / Asian refiners confident on flexible crude buying strategy amid Middle East jitters

Asian refiners confident on flexible crude buying strategy amid Middle East jitters

Escalating geopolitical tensions in the Persian Gulf and the subsequent crude supply disruption risks came to the fore in Asia Monday, but the region’s top crude importers refrained from pressing the panic button, expressing strong confidence in their flexible feedstock procurement strategies.

Asia’s top Middle Eastern crude customers — China, South Korea, India and Japan — are once again facing some risk of term supply allocation cuts, with escalating tensions between the US and Iran putting key production facilities and Asia-bound trade routes in danger, industry officials and trade sources said.

However, Asia’s rigorous efforts to diversify crude supply sources beyond the Middle Eastern market over the past few years, in conjunction with sufficient oil reserves, would effectively insulate regional refiners against any potential reduction in Persian Gulf term supply, the officials and sources said.

Asia crude oil procurement


“[Asian] refiners have weathered many storms, especially last year … geopolitical [issues] and [Middle Eastern] supply disruption risks are nothing new for them now and the region is not as heavily dependent on Middle East as before,” a Seoul-based Korea Petroleum Association official said.

In China, refinery officials were also quick to downplay any concerns over potential Middle Eastern supply disruptions.

The US State Department warned Sunday of heightened risks of attacks around oil facilities in Saudi Arabia’s Eastern Province, even as Iraq’s parliament voted to expel US forces from OPEC’s second-largest producer in an escalation of Middle East tensions.

“[But] I don’t think there would be an immediate impact on physical supplies unless Iran is able to block the Strait of Hormuz…this seems very unlikely due to Iran’s current weak economic status and military power compared to the US,” a crude oil trading manager at a Beijing-based state-run refiner said.

In addition, China has expanded its supply sources significantly over the recent few trading cycles, adding Norwegian and Latin American producers to its top 10 supplier list in 2019, industry officials and trade participants said.

Refiners in India also maintained a calm approach, indicating that the South Asian end-user has also been diversifying its crude supply routes.

“India has greatly diversified crude supply sources ever since the reimposition of US sanctions on Iran…a sharp jump in US crude purchases is just one example,” said a sweet crude trading manager at state-run Bharat Petroleum Corp.

“The immediate concern is more about prices rather than supply risk. Since the attacks, we haven’t heard anything from any Middle East supplier that should immediately raise the level of concern,” said a senior official at another state-run Indian refiner.

Japanese refiners said they do not see any immediate impact on their crude procurement from the Middle East, with some companies weighing in alternative supply sources as part of their ongoing diversification efforts, company officials said Monday.

“We do not see any impact on our crude procurement as of now but we will closely monitor the Middle East situations, including Iran and Iraq,” said an official at the country’s largest refiner, JXTG Nippon Oil & Energy.

South Korea, for one, could source additional medium and heavy sour crude supply from the Americas in the unlikely event of drastic Middle Eastern term supply cuts, trading desk managers at the country’s top refiners, including SK Innovation, GS Caltex and Hyundai Oilbank, told S&P Global Platts.

Plenty of medium and heavy sour crude could be sourced from Mexico, for example, multiple South Korean refinery sources said, indicating that the country received more than 41 million barrels of Isthmus and Maya crude from the Central American producer in 2019.

China has also been embracing more non-OPEC crude producers in recent years, with both state-run and independent refiners increasingly venturing into the Latin American market.

Brazilian crudes have become a staple diet for Chinese refiners, with heavy sweet Lula crude consistently making the top three monthly feedstock grades for the country’s independent refining sector, according to Platts monthly survey.

China also looks set to add Norway into the list of its regular crude oil suppliers in 2020, with the country’s independent refiners especially finding North Sea’s new Johan Sverdrup crude attractive for its competitive price and familiar specification, Platts previously reported.

Norway became a top 10 crude supplier to China’s independent refineries for the very first time in November 2019 as multiple end-users picked up various grades, including Grane Blend, Heidrun and Balder.

At least 3 million barrels of Johan Sverdrup crude is expected to reach China over the next two months, with Qingyuan Petrochemical, Dongfang Hualong Group and Luqing Petrochemical each buying a 1-million-barrel cargo for delivery over January-February.

Japan has also been growing fond of non-OPEC crude suppliers over the recent years, with Asia’s third-biggest oil consumer picking up more Russian and US oil last year.

Japan received on average 152,900 b/d of crude from Russia during January-November 2019, up 6.2% from 144,019 b/d imported a year earlier, according to latest data from the country’s Ministry of Economy, Trade and Industry, or METI.

Japan’s US crude intake also jumped to 63,530 b/d in January-November from 38,328 b/d in 2018, METI data showed.
Source: Platts

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping