Asian crude importers dismiss OPEC+ cuts, secure ample US and Latin American supplies

Asian crude importers remain unconcerned about OPEC+ members extending their production-cut strategy. Refiners in Japan, South Korea and Thailand can consistently secure ample US and various Latin American barrels, prioritizing logistical efficiency for crude deliveries from the Americas.

Despite the prolonged OPEC+ output cuts, term Middle Eastern crude supplies for major Asian customers have remained largely unaffected over the past several years. Most refiners across East and South Asia consistently receive full monthly term contractual nomination volumes. Additionally, the Asia-Pacific spot market is seeing abundant offers for light sweet US crude and heavy-end Canadian grades, according to feedstock management sources at Thai, Japanese, and South Korean refiners on Nov. 4.

The eight OPEC+ countries implementing 2.2 million b/d in voluntary crude oil production cuts have again postponed plans to start phasing them out and will now keep them in place through the end of December. The alliance has been scrambling to shore up the oil market in recent months, with tepid Chinese demand growth, high interest rates around the world, increased non-OPEC+ production, particularly in the Americas, and quota busting by key members such as Iraq and Kazakhstan putting downward pressure on oil prices.

The latest OPEC+ decision comes as little surprise, and Persian Gulf sour crude supplies to the Far East should remain unaffected. Major Middle Eastern suppliers consistently honor their trade partnerships with Japanese refiners, and supply commitments have never faltered, regardless of geopolitical or commercial issues, said feedstock managers at two Japanese refiners, including Taiyo Oil.

"Indian refiners have a strong preference for cheaper Russian barrels so they have been taking much less Middle Eastern sour crude cargoes than before, making room for many other Asian buyers to take adequate Middle Eastern supplies... the OPEC+ cuts have never bothered us," said a feedstock and inventory management source at a state-run Thai refiner.

"I cannot actually recall any of the major Middle Eastern suppliers ever informing us that they cannot fully meet monthly term supply agreement due to the OPEC+ cut reasons... big names like Aramco, KPC and ADNOC have high respect for Asian customers," said a senior feedstock manager at a South Korean refiner.

Saudi Aramco was heard to have met Asian refiners' nominations in full for October-loading crude term volumes, while volumes to Asia's largest crude importer, China, were higher on the month, S&P Commodity Insights reported previously.

Less logistical hassle for American crude

Asian refiners are becoming less reliant on Middle Eastern sour crude supplies, increasingly favoring light sweet US crude and various Latin American sweet and sour crude supplies, primarily due to attractive refining and logistical economics.

Cracking lighter and sweeter US crude for higher middle distillate yields bode well for the overall refining margins, while feedstock management sources at South Korean and Japanese refiners said the cost of shipping insurance for US Gulf Cost-Asia fixtures is much lower than Persian Gulf-Asia fixtures.

Tanker availability in the Persian Gulf region has tightened over the past year, likely due to lengthy delays in shipping flows in an effort to avoid the Suez Canal-Red Sea route, while tanker insurance fees remain very expensive for Persian Gulf sour crude deliveries. However, the US and other Americas delivery fixtures and logistics are much more straightforward, feedstock managers and traders said.

Japan's biggest refiner, ENEOS, recently indicated that it is actively working to diversify its crude oil supply sources, including from Canada.

ENEOS' comments came as Japan's crude oil imports from North America totaled more than 4.1 million barrels in September. Its imports from the US rose nine-fold year over year, while also marking its first imports of Canada's Cold Lake since November 2019. This brought down its dependency on Middle East crude to the lowest in eight months.

Asia's biggest US crude buyer, South Korea, also boosted shipments from the North American supplier so far this year, taking 131.52 million barrels from January-September, up 34.6% from 97.72 million barrels purchased over the same period a year earlier, latest data from state-run Korea National Oil Corp. showed.

In addition, at least 2 million barrels/month of Mexican Isthmus and Maya crudes have been regularly secured for South Korea, according to a South Korean refinery source with a knowledge of the matter.

The feedstock manager at a state-run Thai refiner said that for Thailand, US and Brazilian supplies have been providing a sense of security and comfort in times of geopolitical uncertainties in the Middle East.

In the first nine months, Thailand boosted US crude purchases by 9.8% year on year to 116,297 b/d, while January-September shipments from Brazil rose 18.5% from a year earlier to 18,492 b/d, according to the latest data from Thai customs.