US crude getting more and more popular in Asia

SINGAPORE: For decades, Asian oil buyers relished Tapis from Malaysia, Seria Light from Brunei, Duri from Indonesia, and Daqing from China. Now, as plunging regional output starves them of high-quality crude, they are developing a taste for something new.

“US crude is becoming more and more popular,” said Wang Pei, an executive at the trading unit of China Petroleum and Chemical Corp., the world’s biggest refiner, that’s known as Sinopec. “Our refining system really likes US crude.”

Asia, the biggest oil-consuming region in the world, has imported about one in three barrels that the US has sold overseas since the start of 2017, even though export terminals along the US Gulf of Mexico are over 15,000 miles away by sea from buyers such as China, Japan and South Korea, more than double the distance to Europe.

American crude is not only offsetting lower Asian output, it’s displacing West African crude too.

The new trade flow is a key point of conversation this week as the who’s who of the trading industry gathered for the annual AsiaPacific Petroleum Conference in Singapore.

“We are likely to see US oil exports, primarily into Asia, for a long, long time,” Ryan Krogmeier, vice president of crude supply and trading at Chevron Corp, said at the S&P Global Platts APPEC event.

If the flows are to continue, as traders and refiners assume, the price relationship between key benchmarks is going to change – probably for good. Oil traders see US West Texas Intermediate remaining weak against Europe’s Brent and the Middle East’s Dubai crude, as is the case now, to keep open the arbitrage window that allows US crude to travel to Asia.

“We’re likely to see a wider WTI-Brent spread than over the last few years,” said Chris Bake, a senior executive at Vitol Group, the world’s largest independent oil trader.

Asian oil refiners had progressively widened their net over the last three decades. In the 1990s, they bought a large chunk of their intake within their own region; in the 2000s they expanded into the Middle East, and over the last decade the North Sea and Africa became another key source of supplies. Now, the Americas is the new frontier, with refiners buying crude not only from the US but also increasingly from Canada, Mexico, Venezuela and Brazil.

The interest in US crude is three fold: first, it fits the configuration of Asian refineries, which like to process high quality so-called light, sweet crude that yields more petroleum products such as gasoline and diesel. Second, it’s cheap, with WTI trading at times at a steep discount to other oil benchmarks. Third, the cargoes are bought on a spot basis, giving refiners flexibility to complement their more traditional Middle Eastern supplies that are sourced via longterm contracts.

“Asian regional production of light sweet crude is declining,” said Janet Kong, Eastern Hemisphere CEO of integrated supply & trading at BP Plc in Singapore.

“Asian refiners for the first time feel they have choices: they have the ability to diversify sources of supply.”

In private, oil traders and refining executives say politics are also playing a big role in the surge of U.S oil flows into Asia.

From Tokyo to Beijing, Asian governments are trying to balance their trade with America, and buying crude from the nation is seen as a way to foster the relationship with Washington.

Asia bought about 316,000 barrels a day from the US between January and June, according to official data.

That’s about a third of the slightly more than 900,000 barrels a day the country is selling overseas. While the export flow is a fraction of the roughly 40 million barrels a day that OPEC pumps, the new sales are, at the margin, making a difference.