Asia’s appetite for US crude intact despite lucrative Russian offers

Asia’s appetite for US crude posted positive growth in the first quarter despite lucrative Russian offers, but North American supplies could face more competition in the second quarter as refiners will continue picking up barrels from the non-OPEC supplier until they remain outside sanctions and are available at substantial discounts

But analysts added even if Russian crude inflows to Asia pick up substantially in Q2, it won’t alter trade flows dramatically since the share of Russian crude in some Asian countries is traditionally small. For example, it was less than 1% in India’s total crude imports in 2021.

“In the recent past, USA has become a major crude oil source for India, supplying almost $13 billion worth of energy imports, with almost 7.3% of market share of crude oil imports,” according to a recent Indian government statement. “Energy purchases from Russia remain miniscule in comparison to India’s total consumption.”

According to the latest data from the US Census Bureau, total US crude oil exports rose year on year by 544,000 b/d year on year to 3.3 million b/d in Q1. Asia accounted for 46% of those exports, with volumes rising to 90,000 b/d year on year to 1.5 million b/d in that period.

India was the top destination of US crudes over the first two months, with shipments of 476,000 b/d, but US crude exports to India dropped to 229,000 b/d in March.

“With India taking less US crude, other Asian and European refiners will look to import more from the US as more crudes will be available following significant SPR releases, in addition to growing domestic production,” said Lim Jit Yang, adviser for Platts Analytics at S&P Global Commodity Insights.

Inflows to China, South Korea

Among other Asian buyers, China’s crude imports from the US fell 30.3% year on year to 3.33 million mt in Q1, according to data from the General Administration of Customs. Imports from Russia also fell 10.8% to 19.05 million mt in Q1 of this year, compared with Q1 of 2021.

However, South Korea will likely continue to heavily favor US crude over Q2 and Q3 as the world’s fourth biggest crude importer finds WTI Midland and Eagle Ford crude the best alternatives to replace light sweet Far East Russian grades including Sokol, Sakhalin Blend and ESPO.

Major South Korean refiners, including SK Innovation and GS Caltex, imported 38.98 million barrels of US crude over January-March, up 53% from 25.33 million barrels received during the same period a year earlier, taking Q1 imports of North American shipments to record highs, latest data from state-run Korea National Oil Corp. showed.

The world’s fourth biggest crude importer has been receiving at least five VLCCs of US crude every month since June 2020, with the exception of December 2021.

South Korea’s US crude purchases could average more than 12 million barrels per month in Q2 and Q3, according to crude and condensate trading managers at two major South Korean refiners.

Interest in spot deals

“With limited term contract barrels from the Middle Eastern suppliers and the conservative OPEC+ production hike strategy, South Korean refiners are looking to buy as many US crude cargoes as possible from the spot market as they are looking to continue capitalizing on lucrative Asian cracks and export sales margins,” according to a crude and oil product trade flow analyst at Korea Petroleum Association based in Seoul.

Elsewhere, Thailand was also looking to boost its US crude purchases, while gradually cutting back on Russian oil imports, according to a feedstock management source at a state-run Thai refiner.

“Technically, we can still buy Russian crude and naphtha because the Thai government has not officially banned any Russian energy imports and it’s probably the best time to buy Russian oil because they are heavily discounted now. But is it worth all the legal, trade, logistics and political complications?,” the feedstock manager said.

Thailand imported 23,717 b/d of crude from Russia in the Q1, down 35% from 36,664 b/d in the same period a year earlier, latest data from the Thai government’s Energy Policy and Planning Office showed.

Thailand would have little problem filling any gaps left by declining Russian crude purchases as the country’s dependence on Russian oil was minimal. An extra cargo purchase from the US or nearby Malaysia could more than make up for the Russian shortfall, the feedstock manager added.

Southeast Asia’s second-biggest economy imported 92,593 b/d of crude from the US in Q1, up 4% from a year earlier, the data showed.

With major refineries in Thailand ramping up run rates to meet rapid recovery in fuel demand from the country’s tourism sector, US crude imports could average close to 100,000 b/d throughout the Q2 and Q3, according to a refining margin analyst at PTT’s subsidiary IRPC.
Source: Platts