As price hike looms,Asia’s oil buyers look elsewhere
SINGAPORE/TOKYO: 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 on Wednesday 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 TonenGeneral Sekiyu.
“Our company aims to avoid depending highly on certain
For us, the current price levels look to be appropriate for both sides (buyers and producers).
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 longstanding 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 per cent 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 per cent in January to 46 per cent in November.
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
Eiichiro Kitahara, TonenGeneral Sekiyu executive officer
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. — Reuters