Asian refiners shrug off OPEC+ cut as Middle East suppliers respect Far East contracts

Asian refiners were broadly unfazed by OPEC and its alliance making fresh commitment to limit the group's crude production and exports throughout early 2024 as major Middle Eastern suppliers are expected to continue prioritizing their customers in the Far East and provide stable term contractual volumes.

Saudi Arabia said Nov. 30 that it will extend its 1 million b/d voluntary crude production cuts through the first quarter of 2024, while Russia agreed to a 500,000 b/d supply cut for the same duration. Several other OPEC+ members will also commit to voluntary supply cuts, bringing the total reduction by the alliance to 2.2 million b/d for the first three months next year.

OPEC+ has long been maintaining a firm stance to control and limit the group's crude production levels, but major Middle Eastern producers are fully respecting East Asian customers' demand and requirements, with Saudi Aramco and Abu Dhabi National Oil Co. consistently fulfilling monthly term supply contracts for the buyers, according to traders and feedstock managers at major Thai, Japanese, Taiwanese, South Korean and Chinese refiners.

Saudi Aramco has fully met most Asian refiners' nominations for December-loading crude oil with no cuts made, while ADNOC has allocated full term supplies to most Asian buyers for February loading crude, according to market participants surveyed by S&P Global Commodity Insights.

"Never once Saudi Aramco has notified us that they would have to slash and tweak our monthly term supply lifting barrels due to the OPEC+ cut ... If anything, they were keen to provide us more, especially with India and China favoring Russian crude over Middle Eastern grades," said a feedstock manager at a major South Korean refiner.

In the first nine months, South Korea imported 543.62 million barrels of crude from Middle Eastern producers, up from 524.95 million barrels received during the same period a year earlier, latest data from Korea National Oil Corp. showed.

"Aramco and ADNOC are keen to do anything to support oil prices, but they are fully aware of the huge importance of looking after their very important customers in Asia," said a feedstock manager at a Taiwanese refiner.

Japan relies heavily on Middle Eastern sour crude and Asia's fourth biggest crude importer has not been starved of Persian Gulf supplies, according to crude procurement strategists at two major Japanese refiners including Cosmo Oil.

"Aramco, ADNOC, KPC, SOMO and others have a long history of highly trusted business and trade relationships with Japan ... If there was no stability and trust in Middle Eastern supplies, Japan wouldn't be sourcing more than 95% of the country's total crude requirement from that single region," a crude trading and linear programming model strategist at a major Japanese refiner said.

Meanwhile, China imported 5.31 million b/d of crude from Middle Eastern producers, slightly more than 5.3 million b/d purchased from the Persian Gulf region a year earlier, latest data from the General Administration of Customs showed.

China's higher Persian Gulf crude intake in the first 10 months is a clear cut indication that Asia's biggest oil consumer has not seen any serious disruption in sour crude procurement in times of prolonged OPEC+ cuts, refinery sources and sour crude traders across Asia said.

US crude preference

Major refiners in South Korea, Japan, Thailand and Taiwan also indicated that they don't necessarily need to overly depend on Persian Gulf supplies as there is plentiful light sweet US crude being offered into Asia at an attractive price amid a narrowing Brent-Dubai price spread.

South Korean refiners, as well as a slew of other East Asian crude importers, have been paying close attention to arbitrage trading opportunities to bring in ample US cargoes since July as the Brent-Dubai price spread has started to trend lower, while market participants anticipate that the lifting of sanctions on Venezuelan oil would weigh on WTI Midland's price differential, as more Venezuelan crude oil heading to the US could potentially lead to higher exports of the light sweet US grade.

The Brent/Dubai Exchange of Futures for Swaps, or EFS spread, a key indicator of Brent's premium to the Middle Eastern benchmark, averaged 99 cents/b in the third quarter, marking the narrowest quarterly spread since 48 cents/b in Q4 2020, S&P Global data showed.

A weaker EFS makes various sweet crude grades produced in the Americas, North Sea and Africa that are linked to the European benchmark more economical compared with Dubai-linked grades. The spread flipped to negative at minus 14 cents/b on Nov. 17 and Platts last assessed the spread at plus 39 cents/b Nov. 30, S&P Global data showed.

Taking advantage of the narrow EFS, Japan's US crude imports climbed nearly sixfold on the month and 5.7% on the year to 81,816 b/d in October, latest data from the Ministry of Economy, Trade and Industry showed. South Korea took 14.82 million barrels from the US last month, up 83.5% from September, marking the highest monthly shipment since 15.09 million barrels in January 2022.

Elsewhere, Taiwan's CPC was heard to have purchased three VLCCs of US WTI Midland crude for February delivery at a premium of $3.25-$3.50/b to January Dated Brent, CFR Taiwan.