Japanese refiners back OPEC+ crude output hike amid high Middle Eastern reliance

Japan's refiners fully support OPEC+ crude producers' decision to increase output, as the country's reliance on Middle Eastern suppliers is expected to remain high in 2025 despite efforts to diversify supply sources, according to traders and feedstock managers interviewed between April 14 and April 16.

The Asian refining industry has been highly satisfied with the recent significant drop in major Middle Eastern crude producers' official selling prices for May-bound cargoes. Japanese refiners, in particular, are hopeful that key OPEC members will sustain the group's momentum for supply increases, as their cracking margins heavily rely on Persian Gulf sour crude grades.

As Asia's fourth-largest crude buyer, Japan is poised to benefit the most from OPEC members' decision to increase production due to its reliance on Middle Eastern suppliers for more than 95% of its total crude requirements, according to feedstock managers from two major Japanese refiners, ENEOS and a market analyst at an integrated Japanese trading company based in Singapore, who has close knowledge of daily sour crude trades.

"It was a relief to see the Saudi and other major Middle Eastern crude OSPs decline sharply as Japanese refining margins are closely linked to the Middle Eastern price structure and OSPs," said a feedstock and logistics manager at a major Japanese refiner.

Eight OPEC+ members collectively implementing 2.2 million b/d of voluntary production cuts will see their quotas rise by a combined 411,000 b/d in May, OPEC said in a statement April 3. The eight producers -- Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria and Oman -- began gradually unwinding the cuts in April, with incremental increases of about 130,000 b/d expected each month.

In the first two months of 2025, Japan imported 2.453 million b/d, or 96.4%, of its total monthly crude inflows from the Persian Gulf, according to the latest data from the Ministry of Economy, Trade and Industry. Industry analysts and feedstock management sources at major refiners, including ENEOS and Cosmo Oil, indicated that the country aims to reduce this ratio to below 90%. However, technical constraints and strategic trading considerations limit the extent to which the refinery crude slate can be reshuffled.

"Refinery configurations and CDU feedstock blends cannot be altered drastically within a year. Diversification is possible through gradual changes in the monthly and quarterly crude slate," said a feedstock management source at Taiyo Oil.

A market analyst at an integrated Japanese trading company based in Singapore said: "In times of global trade and tariff uncertainties, it is probably the safest option to stick with regular and highly trusted trading partners. For Japan's crude trades, those safe and trusted partners are Middle Eastern suppliers."

WTI Midland offers

Japan could increase the share of US crude in its feedstock mix to reduce its overdependence on Middle Eastern crude, with WTI Midland emerging as the top non-Persian Gulf feedstock choice for Japanese refiners in recent years, according to industry sources.

Japanese and South Korean refiners have observed abundant offers of WTI Midland cargoes in recent trading sessions, as light sweet US crude suppliers and traders actively seek regular customers to accept barrels that have been turned down by Chinese state-run refiners due to the ongoing trade dispute between Washington and Beijing.

However, the decision to acquire additional WTI Midland cargoes ultimately hinges on the cracking economics and the competitiveness of light sweet crude against Middle Eastern barrels.

At least four major Japanese and South Korean refiners indicated that they have not yet seen their regular US crude suppliers offering July delivery WTI Midland cargoes at improved price differentials compared with previous trading cycles.

"US crude is the best way to reduce Japan's significant reliance on Middle Eastern supplies, but WTI Midland offers need to be much more competitive," said the feedstock manager at one of the Japanese refiners. "Otherwise, there is no incentive for us to sacrifice refining margins solely for the purpose of feedstock diversification."

Due to favorable margins in the North American refining industry, light sweet crude producers in the US are currently adding a price premium to their export barrels, according to officials and feedstock management sources at two South Korean refiners who spoke to Platts, part of S&P Global Commodity Insights.

While WTI Midland offers are unlikely to decline sharply in the near term, feedstock managers at Japanese and South Korean refiners note that it will be interesting to see how China's weakening demand might impact spot price differentials over the longer term.

Among recent spot deals concluded in the Asian market, Taiwan's CPC was reported to have purchased 2 million barrels of WTI Midland crude for delivery in June from Equinor at a premium of about $2.75/b to Platts Dated Brent on a CFR basis.

Platts assessed the spread between WTI Midland and Dubai crude on a DES Yeosu basis at an average premium of $3.58/b so far in April, compared with a first-quarter average of $4.89/b.