While it is cutting more than required in the OPEC deal, Saudi Arabia is not ceding its grip on its biggest Asian market—Japan—and is raising market share by selling more light crude to its prized market to compensate for revenues lost from cutting the supply of the heavy crude variety.
According to trade flows data by Thomson Reuters Eikon, Japan’s imports of crude oil from Saudi Arabia rose by 7.7 percent annually in the first half this year, to 1.3 million bpd, making the Saudis the biggest crude supplier to Japan.
Saudi Arabia’s state oil firm Aramco has been selling more of the Arab Extra Light to Japanese customers, as the Saudis have been offering extra light crude cargoes on top of the volumes that buyers have contracted, two Japanese refining sources told Reuters.
Trading sources told Platts in mid-June that the major buyers of Saudi oil in Asia had received full volumes for July, and some Japanese customers had even received higher volumes. At least two Japanese refiners had been allocated extra volumes, with one receiving “slightly more Arab Extra Light.”
Saudi Arabia “clearly sees Asia as its backyard and as a centre of growth and long-term source of demand. As such, it does not want to give up too much market share here,” Virendra Chauhan, a Singapore-based analyst at consultancy Energy Aspects, told Reuters.
Related: Total OPEC Crude Oil Exports Drop In June
While the Saudis are building up market share in Japan, they have been doing this at the expense of other Middle Eastern producers. Japan’s imports of Iranian crude oil fell by 20 percent between January and June 2017, imports from Kuwait dropped by 8 percent, and imports from the UAE declined 5 percent, according to Reuters trade data.
Saudi Arabia’s crude exports to China and South Korea, its second- and third-biggest Asian markets, were little changed in the first half this year compared to the same period last year. But exports to India and Taiwan fell by 3 percent and 13 percent, respectively, Eikon data shows, with trade sources saying that the drop was due to Saudi Arabia’s inability to deliver more heavy crude, which OPEC’s production cuts have affected most.
Asian crude buyers expect Saudi Arabia to raise its August official selling price (OSP) for the Arab Heavy crude that it sells to Asia to the highest in more than 3 years, as a tighter market for heavy crude grades in Asia amid the OPEC production cut has led to record refining profits on making fuel oil in Asia.
By Tsvetana Paraskova for Oilprice.com
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