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About Commodity Insights
22 Nov 2022 | 04:18 UTC
Highlights
Share of US crude in Asia down sharply in Jan-Sept: S&P Global
China's crude oil imports from US drop 42.8% on year over Jan-Oct
South Korea's purchases from US fall 22% on year in Q3
The share of US crude in Asia's overall import basket has fallen sharply in 2022 so far as leading buyers shift to attractively priced Russian crudes, as well as supply from other origins, to meet the revival in demand as pandemic restrictions ease, analysts told S&P Global Commodity Insights.
Although in absolute terms, actual volumes of US crude flows to Asia in the January-September period showed a modest year-on-year rise of 76,000 b/d to 1.47 million b/d, the market share of US crude in the same period fell to 42% from 48% in the year-ago period, a sign that reflects buyers have looked elsewhere to meet the incremental demand so far this year, data from S&P Global showed.
"Asia will be competing for US crudes if the arbs make sense, especially for countries which are not importing Russian crudes, such as South Korea," said Lim Jit Yang, advisor for Asia-Pacific oil markets at S&P Global. "Meanwhile, everyone will be watching as to how much Russian crude would continue to be put on the global market once the G7 price cap and EU's sanctions come into force early next month."
The EU oil embargo on Russian seaborne crude comes into effect on Dec. 5, 2022, followed by the ban on Russian refined products on Feb. 5, 2023.
For the first nine months of 2022, US crude exports to all destinations across the globe averaged 3.5 million b/d, up by about 19% year on year. US exports to Europe jumped by 452,000 b/d over the same period to 1.46 million b/d, US Census Bureau data showed.
According to S&P Global, US crude exports are expected to average 3.5 million b/d this year, before rising to 3.7 million b/d in 2023, with flows to Europe likely to increase as EU's sanctions on Russian crudes take effect.
"For the past four months, the Netherlands and UK were interchangeably competing for the top spot," Lim said, adding that South Korea was the top destination of US crudes in September as volumes to Europe pulled back, partly on planned refinery turnarounds. In the same month, India jumped to the second spot in September, from the eleventh in August.
US crude flows to Asia's biggest oil consumer China has shown a significant fall.
Shipments from the US slumped 42.8% year on year to 148,462 b/d over January-October, data from China's customs showed.
"Despite higher crude prices this year, we don't see a surge in US shale oil production. Instead, strong buying power from Europe is absorbing the majority of the US barrels. We will keep an eye on the flows to looking for opportunities and bring in some barrels when prices are competitive," said a Beijing-based source with a leading state-owned trading firm.
Tushar Tarun Bansal, senior principal at Munich-based management consultancy, Consistency GmbH, said restrictions on Russian exports to Europe are expected to cause further changes to global trade flows.
"US crude, with high API, relatively low sulfur and smaller parcel sizes, is intrinsically better suited for Europe. Arbitrage economics are expected to work to allow US crude to compete with West Africa into Europe, and opportunistically into Asia," Bansal added. "These trade flows, however, mean that shipping will continue to remain tight due to the longer voyage times."
South Korea imported 28.4 million barrels of crude oil and condensate from the US in the third quarter, down nearly 22% from the 36.3 million barrels received during the same period a year earlier, latest data from the state-run Korea National Oil Corp. showed.
South Korean refiners indicated that US suppliers have been somewhat reluctant to hand out extra cargoes in recent trading cycles due to stronger demand from Europe as well as growing political pressure in the US to reserve crude supply for the domestic market in an effort to temper surging retail gasoline prices.
European end-users had earlier not been overly impressed by the quality of the US crude as the supply had been sourced from different small upstream fields. However, the quality has since improved significantly and many refineries are willing to take more US grades, said Michael Spitzbart, senior vice president for supply & trading at OMV.
As European refiners absorb more US, as well as North Sea and Johan Sverdrup crudes, to replace the Russian Urals, South Korean refiners would need to actively secure Middle Eastern supplies, especially Saudi crude, by tying up longer-term contracts, analysts at KNOC and Korea Petroleum Association said.
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