As OPEC price hike looms, Asia’s oil buy­ers may shop else­where Rus­sia leapfrogs Saudi as China’s top sup­plier

Kuwait Times - - BUSINESS -

For the first time since 2008, OPEC is set to strike a deal to cut oil out­put that may boost prices. It may also give it­self a bloody nose in Asia, where big buy­ers are ramp­ing up sup­plies from else­where and say they don’t want to pay more for fuel. The Or­ga­ni­za­tion of Petroleum Ex­port­ing Coun­tries (OPEC) meets to­day to ham­mer out a deal to prop up prices that have halved since 2014. As they gather, tanker ship­ments to Asia from non-OPEC sources like Alaska, Azer­bai­jan, and the North Sea are grow­ing, ac­cord­ing to ship­ping data in Thom­son Reuters Eikon.

Buy­ers in Asia, which alone uses a third of the world’s oil sup­ply, have watched with con­cern as OPEC sup­pli­ers - their biggest openly dis­cuss prop­ping up prices. With non-OPEC sup­plies read­ily avail­able, they say they’ll con­sider ex­plor­ing new sources if the car­tel’s price is no longer right. “For us, the cur­rent price lev­els look to be ap­pro­pri­ate for both sides (buy­ers and pro­duc­ers),” said Ei­ichiro Ki­ta­hara, Ex­ec­u­tive Of­fi­cer at ma­jor Ja­panese re­fin­ery To­nen Gen­eral Sekiyu. “Our com­pany aims to avoid de­pend­ing highly on cer­tain sup­pli­ers, and we may seek new (sup­ply) op­por­tu­ni­ties,” Ki­ta­hara said, though like other ex­ec­u­tives he cau­tioned against ex­pec­ta­tions of any sud­den change in sup­ply trends among buy­ers. Ma­jor im­porters in Ja­pan, China and South Korea have long-stand­ing re­la­tion­ships with OPEC sup­pli­ers, with just its Mid­dle East mem­bers pro­vid­ing two-thirds of Asia’s oil needs.

Those ties could loosen, with re­fin­ers in coun­tries like Ja­pan - which gets around 90 per­cent of its oil from Mid­dle East OPECmem­bers - keen to di­ver­sify sources to cut re­liance on any sin­gle sup­plier.

In China, now chal­leng­ing the United States as the world’s biggest oil im­porter, ef­forts to re­duce de­pen­dence on Mid­dle East sup­plies have al­ready seen OPEC king­pin Saudi Ara­bia lose its no.1 sup­plier rank to its ri­val Rus­sia. Eikon data shows Mid­dle East pro­duc­ers’ share of China’s sup­ply mar­ket fell from 50 per­cent in Jan­uary to 46 per­cent in November.

Price - the bot­tom line

Oil mar­kets re­mained jit­tery ahead of the OPEC meet­ing. But re­fin­ers across Asia re­main alive to the prospects of shift­ing mar­ket dy­nam­ics and how they could make other sup­pli­ers more at­trac­tive, even as OPEC seeks a price rise to boost the economies of coun­tries that rely heav­ily on crude ex­ports. “We are closely mon­i­tor­ing the OPEC meet­ing,” said Kim Woo-Kyung, a spokes­woman at ma­jor South Korean re­finer SK In­no­va­tion. “Even if OPEC cuts out­put, it won’t have a big im­pact (on SK In­no­va­tion busi­ness) as there are a lot of sup­plies out there.” De­spite Asia’s open­ness to new sup­pli­ers, price re­mains the ul­ti­mate ar­biter. Most Mid­dle East­ern crudes cost be­tween $45 and $48 per bar­rel ahead of any pro­duc­tion cut ac­cord - a com­pet­i­tive price ver­sus sup­plies from else­where when ship­ping fees are in­cluded. North Sea crudes like Bri­tain’s Brent and For­ties, or Nor­way’s Ose­berg, cost be­tween $46 and al­most $47 a bar­rel, Az­eri Light crude is cur­rently priced at over $48, while Alaska North Slope crude is on the mar­ket for $46.30 per bar­rel.

Fatih Birol, Ex­ec­u­tive Di­rec­tor of the In­ter­na­tional En­ergy Agency (IEA), which rep­re­sents in­ter­ests of oil con­sumers, told Reuters at a con­fer­ence in Tokyo that an OPEC cut de­signed to raise prices could trig­ger an in­crease in out­put by other pro­duc­ers else­where - an in­crease in sup­ply that could end up peg­ging prices back.

“If prices are pushed up to­wards $60 we will see within nine months a strong re­sponse from US shale pro­duc­tion putting oil in the mar­ket,” Birol said. In the United States, sup­pli­ers are poised to take ad­van­tage of any shift in buy­ing pat­terns. “Asian (oil) de­pen­dence on the Mid­dle East is higher than they are com­fort­able with,” said Bill Walker, Gov­er­nor of Alaska, speak­ing dur­ing a re­cent visit to Ja­pan. — Reuters

The Lord Mayor of Lon­don Dr An­drew Parm­ley ad­dresses the re­porters dur­ing a press con­fer­ence yes­ter­day. — Pho­tos by Joseph Sha­gra

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