The largest oil exporters in the Middle East, key members of OPEC, are reaping the benefits of the rally in crude oil prices. At the same time, they are recouping market share in the most important oil market, Asia.
For the first time this year, the Middle East’s share of crude oil imports into Asia rose to above 60 percent in October. At the same time, the shares of European and U.S. shipments in Asia’s overall crude imports dropped last month to the lowest this year, per data by Refinitiv Oil Research cited by Reuters columnist Clyde Russell.
Higher availability of Middle Eastern crude due to the easing of the OPEC+ cuts was not the primary reason for the growing market share of the OPEC Gulf members in Asia’s oil market. Lower prices compared to the prices of cargoes from Africa, Europe, and the U.S. were.
In recent weeks, the discount of Middle East crude prices to Brent prices has widened to the highest in eight years, making Middle Eastern crude cheaper for Asian buyers than oil originating west of the Persian Gulf.
The jump in Brent Crude and WTI Crude prices in recent weeks has made cargoes from Europe, Africa, and the United States—priced either off Brent of WTI—more expensive than Middle East’s crude going to Asia, which is priced off the Oman/Dubai average.
Sure, the key crude prices in the Middle East have also rallied alongside other international oil prices, but not as much as Brent. As a result, a key metric of the difference between Brent and Dubai prices, the front-month Brent/Dubai Exchange of Futures for Swaps, jumped this week to $5.24 a barrel—the highest premium of Brent over Dubai swaps since 2013, according to Refinitiv data cited by Reuters.
The wide discount of Dubai to Brent is expected to continue supporting higher shipments of Middle East crude to Asia, analysts say.
Signs had already emerged a few weeks ago that the Middle East was starting to regain market share in Asia’s oil market after a dip in that share in the spring and summer months.
Chinese and overall Asian crude imports were sluggish in the third quarter of the year as higher prices, increased scrutiny over China’s independent refiners, and the summer COVID outbreak put the brakes on purchases.
However, as the fourth quarter approached, the largest oil producers in the Middle East—led by the world’s top oil exporter Saudi Arabia—started to offer more oil to Asia thanks to the easing of the OPEC+ cuts and reduced the prices for their oil to stay competitive and regain market shares lost since the pandemic started.
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At the beginning of October, Saudi Arabia cut its November OSPs for Asia by $0.40 per barrel for its flagship Arab Light grade, to a premium of $1.30 above the Dubai/Oman benchmark—the lowest premium since March.
This was a second cut for Saudi prices in two consecutive months, after the price rise spurred by the OPEC+ decision in early October to stick to monthly additions of 400,000 bpd rather than boosting output more to cap international prices.
OPEC+ energy ministers are meeting on November 4 to decide output quotas for December amid calls to increase supply more than the planned 400,000-bpd monthly rise.
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Days after the OPEC+ meeting, Saudi Arabia—which generally sets the pricing trend for Middle Eastern crude—is expected to announce its official selling prices for December. A Reuters survey showed last week that traders expect the Saudis to raise the price of Arab Light for Asia in December by between $0.30 and $0.90 a barrel over the current $1.30 per barrel premium to the Oman/Dubai average.
By Tsvetana Paraskova for Oilprice.com
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