Japan, South Korea, Thailand lead Asia's alliance against Russian crude oil

A large volume of Russian sweet and sour crude cargoes may continue to find outlets in China and India, but other major Asian crude importers are fully committed to halting trading with the non-OPEC producer -- with South Korea, Japan and Thailand leading the regional alliance against Russian oil.

Steep discounts on Russia's Urals, ESPO, Sokol and Sakhalin Blend crudes have successfully lured several buyers in Asia, but such bargains are not worth taking for refiners keen to maintain good corporate reputations and those willing to stand in solidarity against all acts of violence, a feedstock manager at Japan's ENEOS, a senior crude and condensate trader at a major South Korean refiner and a plant operations manager at Thailand's PTT said over July 4-8.

Japan received 20,993 b/d of crude oil from Russia in May, down 85% from 141,324 b/d received a year earlier, latest data from the Ministry of Economy, Trade and Industry, or METI, showed.

The sharp drop in May shipments came as little surprise as Japanese refiners have been rapidly phasing out their imports of Russian crude, with the country's top two refiners ENEOS and Idemitsu Kosan having already suspended new Russian crude oil import contracts, industry and trade sources in Tokyo and Chiba said.

Japanese refiners have practically put an end to Russian crude purchases, as the Aframax cargo from Russia in May was Japan's own equity Sakhalin Blend crude from the Sakhalin 2 project, a source at a Japanese integrated trading firm with direct knowledge of the matter told S&P Global Commodity Insights.

However, Russian President Vladimir Putin issued a decree June 30 transferring all rights and obligations held by Sakhalin Energy, the operator of the Sakhalin 2, to a new Russian company citing unspecified "actions by the US and linked foreign countries and organizations that are unfriendly and incompatible with international law."

Japan's Mitsui, at 12.5%, and Mitsubishi, 10%, hold stakes in the Sakhalin 2 project.

"We are currently in the midst of scrutinizing the impact on Japanese companies' stake holdings in the Sakhalin 2 project," METI minister Koichi Hagiuda said July 1, adding that contingency planning was underway.

Meanwhile, Thailand did not purchase any Russian crude in May, latest customs data showed. Over Jaanuary-May, the Southeast Asian nation imported 16,546 b/d of Russian crude, down 59% from 40,838 b/d a year earlier.

"Russian crude was nothing more than one of many minor blendstocks... Thai refiners can live without Russian oil," the PTT plant operations source said.

South Korea's crude imports from Russia in May plunged 84.2% from a year earlier to just 703,000 barrels, marking the smallest monthly shipments from the non-OPEC producer since February 2016, S&P Global reported previously.

"Refining and product export margins have never been better anyway, so no matter how attractive Russian crudes are priced, South Korean refiners won't budge," the South Korean refinery feedstock manager said.

More Middle East, US crude

With little to no interest shown for Russian crude, Japan, Thailand and South Korea would continue focusing on securing as much supply as possible from their traditional top suppliers in the Middle East, as well as the US in the second half of the year, the refinery sources said.

Japan is poised to rely on Middle Eastern producers for more than 90% of its crude requirements in 2022, industry sources said.

Asia's fourth biggest crude importer took 982,644 b/d from the UAE over January-May, up 22% year on year, while Saudi crude shipments during the first five months rose 5% year on year to 1.08 million b/d, the latest METI data showed.

Thailand is also actively purchasing medium sour Upper Zakum and light sour Das Blend and Murban crudes from the UAE. The country ramped up shipments from the Persian Gulf supplier in May by 77% on the year to 364,055 b/d, Thai customs data showed.

Thailand also took 99,558 b/d from the US in May, almost a threefold jump from 33,801 b/d imported a year earlier.

As for South Korea, plenty of WTI Midland and Eagle Ford crude imports from the US would comfortably make up for any gaps left by faltering light sweet Far East Russian crude intake, feedstock management sources at South Korean refiners said previously.

Over January-May, the world's fourth biggest crude importer received 60.6 million barrels from the US, up 38.3% from a year earlier.

JAPAN'S TOP 10 CRUDE SUPPLIERS

(Unit: b/d)

Source: Ministry of Economy, Trade and Industry

THAILAND'S MAJOR CRUDE SUPPLIERS

(Unit: b/d)

*Total includes other suppliers

Source: Customs Department, Energy Policy and Planning Office