USA Oil Pours Into Asia

The physical crude market in Asia is softening as oil from as far away as the US and Brazil flows into the world’s top consuming region, boosting competition for Middle East producers.

Buyers in South Korea, India and China have picked up substantial volumes from the US this month — more than 20 million barrels — mostly for arrival in November, according to traders handling those shipments. In addition, some crude cargoes from the North Sea and Brazil are also being taken, they said.

The shifting purchasing patterns add another dimension to an already-complex global market, with greater volumes of Russian oil still headed to China and India after the invasion of Ukraine. At the same time, crude has been flooding out of the US at a record pace, with overall supplies swollen by the Biden administration’s major sales from the nation’s Strategic Petroleum Reserve, while the European Union is poised to tighten its curbs on Russian flows.

Brent futures — the global benchmark — hit a multi-month low in August as traders assessed the outlook for supplies heading into the year-end. The drop has also been driven by elevated concern that global growth may be slowing, while the possible return of Iranian supply has been weighing on prices.

“I think the OPEC producers would keep a very close eye on signs of growing softness in the physical market,” said Vandana Hari, founder of Vanda Insights, referring to the Organization of Petroleum Exporting Countries. “Should the Iran deal go through, it would put them even more on their guard, especially if their biggest buyers in Asia are scooping up more long-haul crude.”

The increased inflow of long-haul cargoes into Asia, which take twice as long as Middle Eastern barrels, have forced spot premiums of Persian Gulf barrels to dip, with additional pressure from poorer Japanese demand.

The premium of Oman crude futures to Dubai swaps — a gauge of the strength or weakness of Middle Eastern physical barrels in Asia — has more than halved from a month ago, data compiled by Bloomberg showed.

As crude futures slid this month, reducing feedstock costs, the region’s appetite for spot cargoes has stayed relatively firm, other than in Japan. Refining margins for fuels like diesel have rebounded after hitting a two-month low, prompting some local processors to look away from cutting run rates.

So far this month, Japanese buyers have been slow to grab their favored crude from Abu Dhabi for October loading, traders said. Idemitsu Kosan Co. has a planned maintenance at its Yokkaichi plant in October-November that’s keeping some consumption curbed, according to traders.

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