Asia is buying near-record amounts of US crude, replacing Middle East oil Ship’s crew

Reuters

By Muyu Xu and Florence Tan

SINGAPORE, July 21 (Reuters) – Asian refiners have booked near-record volumes of US crude to be shipped in August, set to replace Middle East oil, as competitive prices and ample supplies prompted strong buying, according to trade sources.

The surge in US imports comes on the back of strong Chinese demand for Brazilian oil in the third quarter as Asia ramps up its light oil purchases from America and reduces demand for similar grades from the United Arab Emirates.

About 1.5 to 1.9 million barrels per day (bpd) of U.S. crude, mostly West Texas Intermediate (WTI) Midland, will be shipped to Asia next month, traders said. That would be less than the record 2.2 million bpd shipped in April, according to Kpler vessel tracking data.

“US crude has been aggressively pushed into Asia lately,” a Singapore-based trade source said.

The large flow of US crude to Asia is being helped by deep discounts for WTI versus the Middle East benchmark, Dubai, making it more economical for Asian buyers to ship oil from the US.

The average discount for WTI futures versus Dubai swaps was $5.40 a barrel on July 20, down slightly from $6.08 a barrel last month but up from $3.93 in May.

The cost of chartering a very large crude oil tanker (VLCC) from the United States to China hit a two-month low of $7.4 million last week, down $2.8 million from the previous month, data from Simpson Spence Young on Refinitiv Eikon showed.

Costs have seen WTI Midland trade at around $3 a barrel above Dubai quotes shipped to North Asia in October, slightly cheaper than Abu Dhabi’s flagship Murban, which has a higher sulfur content. Sweet or low sulfur oil is typically more expensive than sour crude oil.

Interest in US crude is also rising as Asian refiners, particularly in China, seek to replace pricier Saudi Arabian crude after state-owned giant Saudi Aramco hiked its official selling prices (OSPs) for two months.

“China has been requesting fewer short-term supplies from Saudi Arabia in recent months and is seizing crude oil from everywhere to fill the supply gap,” said another Singapore-based trader.

China, the world’s largest crude oil importer, has increased its sourcing of US crude this year amid record purchases of Russian and Saudi oil on cheap prices and robust refining demand.

China’s U.S. crude oil imports hit 3.05 million tons, or 742,824 bpd, in June, the highest since December 2020, according to customs data.

“We forecast that US exports to Asia will increase in Q3 23 compared to the previous quarter, with China and even Japan buying large volumes of Midland cargo,” said analysts at consultancy Energy Aspects.

Japan gets more than 95% of its crude oil from countries in the Middle East and is the main buyer of lighter grades from Abu Dhabi such as Murban, Das and Umm Lulu. However, Japanese refiners have been slow to take crude from the UAE so far this month, in part due to outages at Japan’s top refiner Eneos and partner refiner Cosmo Oil, traders said.

(Reporting by Muyu Xu and Florence Tan; Additional reporting by Arathy Somasekhar in Houston; Editing by Sherry Jacob-Phillips)

(c) Copyright Thomson Reuters 2023.

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