Sanctions, conflicts not leading to any major oil supply, trade disruptions
Refiners, traders see adequate crude supply options, sources
Fragile oil demand, tepid China economy to influence oil prices
Geopolitical issues no longer sharply influence oil prices and trade flows in Asia amid ample supply options, industry participants at the Asia Pacific Petroleum Conference said, while cautioning that fragile demand and tepid margins may dictate the market trend in the short term.
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Regardless of geopolitical conflicts involving Russia, Ukraine, Iran and Israel, on top of numerous international sanctions, there were no significant crude supply hiccups and hardly any major disruption to physical trade flow. Asian refining industry and the global oil market overall tend to quickly find ways to adapt to any changes in market dynamics, industry executives said at S&P Global Commodity Insights’ APPEC event over Sept. 9-10.
“The oil market is like a swimming pool… [geopolitical issues and sanctions] can shift [supply-demand dynamics] from one side to another but the actual swimming pool itself is still there,” said FGE Chairman Fereidun Fesharaki.
“The oil market has shown a remarkable resilience and adaptability… 7 million b/d of Russian oil has simply rewired across the globe… [despite the Red Sea attacks] ships have simply rerouted rather smoothly… at the end of the day the oil is reaching the market,” said Vandana Hari, founder of Vanda Insights, adding that dark fleets have played an important part in rebalancing the supply-demand dynamics and trade flows.
Supply-side issues are not much of a concern and despite the OPEC+ group’s recent decision to postpone plans to start unwinding their additional voluntary cuts, the supply may eventually come back and whatever the OPEC+ decides on their supply control measures, there would be less and less impact on the market, according to Pongpun Amornvivat, senior executive vice president of International Trading Business Unit at Thailand’s state-run PTT. He added that plentiful stream of new crude supply options and new grades are emerging lately.
Reflecting Asia’s new supply options, China has been actively purchasing Canada’s Access Western Blend, or AWB, crude cargoes since the start of the TMX pipeline, while Nigerian National Petroleum Company, or NNPC, and its JV partners were actively marketing their new Nembe crude in the Asian market.
Nembe crude is a medium sweet crude with an API gravity of 29 and 0.17% sulfur content. It’s a niche and high quality version of Bonny Light, which many Asian refiners are already familiar with. The Nembe crude production is expected to reach up to 150,000 b/d in the near term and the international trades would be conducted on Platts Dated Brent basis, according to Benedict Peters, chairman & CEO at Aiteo Group and Maryamu Idris, executive director of Commercial Trading at NNPC.
Meanwhile, feedstock managers and downstream operation managers at Japanese, Thai, South Korean and Malaysian refiners attending the APPEC conference and workshops also agreed that crude supply has hardly been a concern as highly sensitive Russian barrels have mostly shifted to India and China, easing the competition for Middle Eastern crude for other key Asian importers.
“We are not particularly paying much attention to Russia-Ukraine and Iran-Israel news these days… feedstock crude procurement has always been stable,” said a middle distillate production and marketing manager at a Japanese refiner on the sidelines of APPEC.
Short-term demand concerns
Although long-term outlook on broader Asian economy and oil demand is positive, the key market focus is the weak near-term economic activity and fragile oil demand pressuring refining margins, as well as higher freight costs amid expensive shipping insurance fees and tight tanker supplies, industry executives and refinery sources said.
“The key driver of oil prices, in my opinion, would be more on the demand side, especially with economy and oil demand in China somewhat struggling,” Amornvivat said.
PTT’s Amornvivat and middle distillate marketers at South Korean and Japanese refiners indicated that China, as well as many other East Asian economies are witnessing a significant slowdown in the real estate and construction sectors, while industrial and manufacturing activities have also been lagging in 2024, consistently putting pressure on gasoil/diesel margins.
Platts, part of Commodity Insights, assessed the second-month Singapore gasoil swap crack against Dubai crude swaps at an average of $18.55/b so far this year, compared to the 2023 average of $22.82/b.
China has been contributing around half of the global oil demand growth over the past 25 years and the market needs better Chinese economic picture for prices to rebound, said Francisco Blanch, managing director and head of global commodities at Bank of America during a panel discussion at the APPEC.