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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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Asia Gobbles Up Cheap U.S. Crude At OPEC’s Expense

  • Cheap U.S. oil is increasingly competing with Middle Eastern grades on the spot market.
  • Asian buyers have bought some 16 million barrels of U.S. crude on the spot market so far this month.
  • Differentials between WTI and Middle Eastern grades have widened during the summer.

Asian buyers have bought a substantial amount of cheap U.S. crude on the spot market, suggesting that demand for Middle Eastern grades will be lower in the immediate future, Bloomberg reports, citing traders.

According to them, South Korean and Indian refiners had bought some 16 million barrels of U.S. crude on the spot market so far this month, with most of the oil to be delivered in November. That’s twice as much as they bought in July but still a little less than they bought over the first five months of the year.

The price differential between West Texas Intermediate and Middle Eastern grades became favorable amid an unexpected decline in U.S. gasoline demand this summer, which led to lower WTI prices. At the same time, Middle Eastern crude remained relatively expensive.

Saudi Arabia, meanwhile, one of the biggest suppliers to Asian countries, raised its official selling prices for oil to a record high earlier this month, with the flagship Arab Light hitting a $9.80-per-brrel premium to the Oman/Dubai benchmark.

South Korea and India are both overwhelmingly reliant on imported crude for their consumption.

South Korea relies on imported commodities for more than 93 percent of its consumption of energy and natural resources. In oil, it imports more than 73 percent from the Middle East.

India, for its part, relies on imports for more than 80 percent of the oil it consumes. Like South Korea, it imports most of its oil from Middle Eastern suppliers, although this year, Indian oil buyers have embraced discounted Russian crude amid Western sanctions.

Earlier this year, Russia became India’s second-largest oil supplier, after Iraq and before Saudi Arabia, with the sanction-prompted discount in Russian oil prices making up for higher freight costs.

Looking ahead, Bloomberg’s trading sources sounded a cautious note, pointing out that refining margins in Asia have been falling, with some refiners thinking about reducing their run rates in this environment. This suggests that Asian oil buyers’ appetite could decline in the coming months.

By Charles Kennedy for Oilprice.com

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