COMMODITIES 2025: Asian refiners expect Middle East crude suppliers to defend Far East market share

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025

Asian refiners expect major Middle Eastern crude producers to focus less on supporting oil prices but pay more attention to reviving their market share in the Far East next year as demand continues to exert more influence than supply on price trends, while plentiful US crude cargoes lure regional buyers.

OPEC producers have been maintaining a tight supply strategy for a few years, but benchmark crude prices have formed a steady downtrend, while key Middle Eastern suppliers like Saudi Arabia have lost their Asian market share over the past couple of years. Persian Gulf suppliers should realize that it may be difficult to lift prices by controlling the group's production volumes as US crude supplies to Asia will likely remain plentiful during Trump administration, while India and China are expected to continue favoring cheap Russian barrels, according to feedstock managers and traders at Japanese, Taiwanese, Thai, South Korean and Chinese refiners.

Saudi Arabia, for one, has been heavily focusing on defending oil prices but it's time for the OPEC Kingpin to consider defending its market share in Asia, according to Janet Kong, CEO of Hengli Petrochemical International.

"Major Middle Eastern producers should admit that demand is dictating the market, not supply," said a senior feedstock inventory and trading manager at a state-run Thai refiner, also indicating that key Persian Gulf suppliers could place less emphasis on OPEC supply quotas but focus more on regaining their lost market share in the Far East.

China took 14.4% of its total crude imports in the first nine months from Saudi Arabia and 6.6% from the UAE, down from 2023 proportion of 15.2% and 7.4%, respectively. In 2022, Saudi Arabia's market share in China's crude import basket was 17.2% and UAE's share was 8.4%.

India relied on Middle Eastern suppliers for 45.9% of its crude imports in the first half 2024, a sharp drop from a couple of years ago as more than 60% of the South Asian nation's total crude import basket consisted of Persian Gulf sour grades in H1 2022, data from S&P Global Commodities at Sea showed.

South Korea relied on Middle Eastern suppliers for 70.9% of its crude oil requirements over January-September, down from 72.8% a year earlier. In Japan, 38.9% of crude shipments came from Saudi Arabia and 7.3% from Kuwait in the first nine months of 2024, down from 39.8% and 9.6%, respectively, a year earlier.

East Asian refiners widely believe tepid demand will continue to overshadow any supply-side risks to keep putting pressure on oil prices in 2025 as plenty of uncertainties on China's overall economic health continue to weigh on oil demand outlook. In addition, consumer spending, manufacturing activity and construction projects in other major East Asian economies such as Japan, South Korea and Taiwan remain sluggish, refinery sources and analysts said.

The latest S&P Global Commodity Insights survey of 16 refinery feedstock managers, traders and industry analysts across Asia showed 38% of participants expect benchmark crude prices to be in a $60-$70/b range and another 38% forecasting a $70-$80/b range for most part of the first half 2025.

Three participants said prices could dip below $60/b by end of H1 next year, though a price spike towards $100/b is always possible if Iran-Israel tensions lead to serious trade flow disruptions. Platts last assessed physical sour crude benchmark Cash Dubai at $72.26/b on Nov. 19.

Keen US crude buyers

Asian refiners, especially feedstock managers in South Korea, Japan and Taiwan, were optimistic that US crude flows to the Far East will remain abundant during Trump administration, allowing the major crude importers to rely less on Middle Eastern supplies.

Although it's difficult to expect a drastic jump in US supplies as the North American producer's output is already near its peak level, the Trump regime's support for the US upstream industry would ensure ample light sweet US crude offers in the Asian market, according to feedstock managers at major South Korean and Japanese refiners.

If another round of Washington-Beijing trade conflict unfolds, limiting China's energy trades with the US, it could provide other major Asian buyers of WTI Midland crude a bigger opportunity to procure additional spot cargoes of the light sweet US crude, feedstock managers said.

South Korea, Asia's third biggest crude importer and the region's biggest US crude buyer, took 131.5 million barrels from the North American producer in the first nine months of 2024, marking a record high shipment over the January-September timeframe and on course for record-high annual imports, according to Commodity Insights analysis and calculation of Korea National Oil Corp. data.

Japan is also on course to set record high US crude intake in 2024, as Asia's fourth biggest crude buyer's January-September shipments from the North American supplier rose 78% on the year to 66,982 b/d, latest data from the Ministry of Economy, Trade and Industry showed.

It is possible for Asian refiners to favor spot cargoes offered by suppliers in the Americas if Middle Eastern crude monthly official selling prices disappoint buyers in the Far East, especially in times of expensive Persian Gulf-Asia fixture tanker insurance fees, said a trading team manager at a US petroleum company based in Singapore with close knowledge of WTI Midland trades in Asia.