Asia gobbles up cheap U.S. crude at OPEC’s expense

Asian buyers bought a substantial amount of cheap U.S. crude on the spot market, suggesting demand for Middle Eastern grades will be weaker in the immediate future, Bloomberg reports, citing traders.

According to them, South Korean and Indian refiners have bought some 16 million barrels of U.S. crude on the spot market so far this month, with most of the oil expected to be delivered in November. That’s twice what they bought in July, but still slightly less than what they bought in the first five months of the year.

The price differential between West Texas Intermediate and Middle Eastern grades has turned favorable amid an unexpected drop in U.S. gasoline demand this summer, driving down WTI prices. At the same time, crude from the Middle East remained relatively expensive.

Saudi Arabia, meanwhile, one of the biggest suppliers to Asian countries, raised its official oil selling prices to a record high earlier this month, with flagship Arab Light reaching a premium of 9.80 $ the brrel compared to the Oman/Dubai benchmark.

South Korea and India both rely heavily on imported crude for their consumption.

South Korea depends on imported raw materials for more than 93% of its energy and natural resource consumption. In oil, it imports more than 73% from the Middle East.

India, for its part, depends on imports for more than 80% of the oil it consumes. Like South Korea, it imports most of its oil from Middle Eastern suppliers, although this year Indian oil buyers have embraced discounted Russian crude under Western sanctions.

Earlier this year, Russia became India’s second-largest oil supplier, after Iraq and ahead of Saudi Arabia, as sanctions-induced reductions in Russian oil prices offset rising freight costs.

Looking ahead, Bloomberg trade sources issued a cautious note, noting that refining margins in Asia were falling, with some refiners considering cutting run rates in this environment. This suggests that the appetite of Asian oil buyers may diminish in the coming months.

By Charles Kennedy for Oilprice.com

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