OPEC+ decision allays worries over Asia’s crude supply amid rising demand

Strong points

Asian oil demand will increase by 2m bpd in Q3 compared to Q2: Platts Analytics

Asian refiners will face increased competition from Europe for cargoes

Concerns remain about how the EU insurance ban will affect Russian freight flows

Asia breathes a sigh of relief as expectations grow that the OPEC-led alliance’s decision to increase supplies along with sustained releases of U.S. strategic reserves will finally help dispel uncertainty about freight availability and rectify the mismatch between global demand and supply.

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As Chinese demand recovers from the shutdowns and the rest of Asia pushes to reopen their economies, analysts said the additional supplies should give refiners breathing space as they seek clarity on how EU insurance ban on Russian cargo could affect cargo flows.

According to Platts Analytics, OPEC+’s decision to increase quotas by 648,000 bpd for July and an additional 648,000 bpd for August – about 50% more than recent monthly increases – will be music to the ears of global refiners as they head into the Northern Hemisphere summer driving season.

“Specifically for Asia, refiners will look to import more crude as demand is expected to increase by 2 million barrels per day in the third quarter compared to the second quarter,” said Lim Jit Yang, adviser for oil markets Asia. -Peaceful at Platts. Analytic.

“SPR releases in the U.S. are also helping to loosen the balance between oil supply and demand, adding about 0.8 to 1 million bpd of supply in recent weeks,” he said. he adds.

Higher intake at T3

Major Asian crude importers, including India, South Korea, Japan and Thailand, have reported that OPEC+ producers continue to ramp up production at a slower pace than desired. The increase would nonetheless prompt Asian refiners to sharply increase their consumption of Middle Eastern crude going forward as they continue to maximize mining rates to fully capture lucrative middle distillate cracks, particularly for diesel and jet fuel.

However, major Asian crude oil refiners and importers – including Thailand’s PTT, Japan’s ENEOS, Taiwan’s CPC Corp. and South Korea’s SK Innovation – fear a significant chunk of additional supply from the Middle East could go to end users in Europe, leaving Asian customers at the bottom of the shopping list, management sources said. raw materials from Asian refiners.

“Asian buyers would still be entitled to more barrels, I’m sure, but how much of the OPEC production increase that would be available to Asian refiners would be the key issue in the Far East” , said a linear scheduling model and refining margin strategist at a South Korean refiner.

Still, as Chinese end-users and some Indian refiners are expected to continue sucking up Russian crude, refiners in Taiwan, South Korea, Japan and Thailand could take a decent share of the extra OPEC supply, particularly from Saudi Arabia and the United Arab Emirates, over the coming trade cycles, according to traders based in Singapore, Bangkok and Seoul.

“I would totally understand if a lot of the additional supply from the Middle East went to Europe, but Asian refiners would still be able to demand and acquire increased supply in the third quarter, especially from Arabia. Saudi Arabia and the United Arab Emirates, the two producers that hold ample spare production capacity,” said a trading desk official at a Japanese refiner.

Refiners brace for demand recovery

Securing an adequate supply of crude and other refining feedstocks is crucial for refiners across Asia as they seek to maintain high operating rates and maximize middle distillate production in an environment of rapid recovery in demand for transport fuel thanks to the easing of pandemic-related restrictions and air passenger traffic, said sources of petroleum products marketing at PTT and ENEOS.

In addition, a severe shortage of middle distillates, especially diesel, is placing many constraints on consumers and businesses in the region, with retail automotive fuel prices hitting record highs.

Major Asian refiners said they had already submitted their requests for higher crude allocations in the third quarter with Saudi Aramco and ADNOC.

“The pace and magnitude of OPEC’s production ramp-up isn’t entirely satisfactory from the perspective of Asian buyers, but Middle Eastern producers are at least supplying significantly more than they were offering. one to two years ago. We should see imports of Saudi crude eventually reaching pre-pandemic levels,” said a market analyst at ENEOS.

Taiwan imported 264,000 bpd of crude from Saudi Arabia between January and April, up 20.2% from the same period a year earlier, according to the latest data from the country’s economic affairs ministry. Japan imported 1.13 million bpd from Saudi Arabia in the first four months, up 4.6% from a year earlier, according to the latest data from the Ministry of Economy, Commerce and Industry.

South Korea received 953,000 bpd of Saudi crude during the same period, up 29.8% from a year earlier, according to the latest data from the Korea National Oil Corp. Korea Petroleum Association analysts say the world’s fourth-largest crude importer could see Saudi crude imports reach nearly 1 million barrels a day by the fourth quarter, though much depends on negotiating the supply contract futures of refiners and the production strategy of OPEC+.

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