Asian refiners were assessing the impact of higher freight and maritime insurance fees in the wake of escalating tensions in the Middle East, and not overly worried about crude supply security, industry sources said April 19.
Feedstock management sources and industry analysts in South Korea, Japan, China and Thailand indicated that Iran-Israel conflict itself is not East Asia’s political concern in reality, while it is highly unlikely that Middle Eastern crude production, supply and tanker flows to the Far East would be disrupted by the tense geopolitics.
The bigger concern, however, is the conflict keeping freight costs high and lifting maritime tanker insurance premiums, refinery sources and analysts said, when asked about the market impact of Israel’s retaliatory strikes on Iran.
“Both sides [Iran and Israel] would choose not to do anything that would directly disrupt Asia’s crude trade flows because they would never want to make any new enemies in the Far East when they both already have too many enemies,” said a feedstock management source at a South Korean refiner.
In the physical market, term and spot Middle Eastern crude supplies for Asia would remain stable and relatively unaffected by Iran-Israel conflict but tanker rates and insurance costs may eat into Asian refiners’ margins, sources in Japan and Thailand said.
“Japan relies a lot on Middle Eastern crude so the tensions are a significant threat to Japan’s supply security but the realistic chances of actual supply disruptions are very low and our primary concern now is the logistical and overall procurement costs, especially in times of weak [Japanese] yen,” said a feedstock management source at ENEOS.
Higher outright oil prices would work in favor of short-term oil product sales margins as well as inventory valuation gains, but fundamentally, expensive Persian Gulf-Asia logistical costs would negatively impact economics for cracking Middle Eastern sour crudes, a feedstock management source at a state-run Thai refiner said.
Tensions arising from the Iran-Israel conflict are sill a source of concern, with the potential to significantly influence Persian Gulf loading dynamics, a VLCC broker said.
Platts assessed the Persian Gulf-East Asia VLCC route on a 270,000-mt cargo basis at an average w65.6 to date in 2024, compared to 2023 average of w57.4, S&P Global Commodity Insights data showed.
Q1 Middle East crude imports slip
Asia would broadly maintain stable term and spot Middle Eastern crude trading activity going forward, but it is possible to adjust and reduce a few spot cargo deals, as many regional refiners consider raising the portion of US and African crude intake in an effort to diversify supply sources beyond Middle Eastern producers, refinery sources said.
“I wouldn’t say the high tanker insurance fees and high freight would drastically lower Middle Eastern crude purchases, but it’s possible to cut back a few spot deals in the Persian Gulf market to accommodate more non-Middle Eastern barrels,” said a feedstock and inventory management source at a South Korean refiner.
South Korea’s crude oil imports in March fell 11.2% from a year earlier to 81.51 million barrels, or 2.63 million b/d, latest data from the Korea Customs Service showed.
Asia’s third biggest crude importer took 29.83 million barrels from its top suppliers Saudi Arabia in March, down 1.8% from a year earlier, but shipments from the US rose 9.9% on the year to 11.46 million last month.
Thailand has also been actively purchasing US crude so far in 2024, while cutting back on Middle Eastern sour crudes.
The Southeast Asian nation took 389,914 b/d of crude from the UAE in the first two months, down 16% from a year earlier, while shipments from Saudi Arabia fell 33% on the year to 145,975, latest customs data showed. On the contrary, Thailand’s US crude imports rose 11% on the year to 109,546 b/d.
In Japan, refiners were seen making efforts to boost cost efficiency in importing Middle Eastern crude, with the country’s second-largest refiner Idemitsu Kosan looking to turn Fuji Oil to its equity-method affiliate.
Idemitsu’s latest move to take Fuji Oil under its arm could significantly enhance trading and logistical efficiency, as both companies have long been regular buyers of Abu Dhabi and Qatari light and medium sour crude grades, including Murban, Qatar Land, Das Blend and Upper Zakum, a source close to the companies said previously.
“For instance, instead of buying two separate Suezmax cargoes of Murban, or Das Blend or whatever the Middle Eastern sour crude grades that refineries require, taking a single VLCC would save costs and speed up loading and discharging time,” the source with close knowledge of the companies’ crude trades and inventory said.
In the first two months, Japan’s crude imports from the UAE rose 12.1% on the year to 1.05 million b/d, but shipments of Saudi crude fell 21.4% from a year earlier to 938,616 b/d, latest data from the Ministry of Economy, Trade and Industry showed.
Meanwhile, Asia’s fourth largest crude importer boosted January-February US crude intake by 58% on the year to 80,560 b/d, METI data showed.
Source: Platts
