Middle East oil producers shrug off the threat from US exports in Asian market

With Asia the demand battleground in the oil market, last week’s S&P Global Platts APPEC conference in Singapore provided an opportunity for producers to put their best foot forward before an audience of refiners and traders increasingly spoilt for supply choice.

Representatives from the region’s traditional major suppliers in the Middle East, to a man, emphasized how key the Asian market is to their long-term strategies.

OPEC Secretary General Mohammed Barkindo, in a video address to the conference, projected that crude exports from the Middle East to Asia would rise from 14.5 million b/d in 2016 to 22 million b/d in 2040.

“For the foreseeable future, we can count on the Asia-Pacific [region] to be the primary outlet for OPEC and Middle Eastern export barrels,” he said.

For example, Iraq, which sends just over half of its total crude exports to Asia, aims to hike that percentage to as much as 80%, said Dheyaa Jafar Hajam al-Musawi, minister councilor for energy affairs at the Iraqi oil ministry.

Asian refiners, unsurprisingly, said that while they welcome the attention, they are doing their due diligence on newer suppliers. The US, in particular, with its growth in production and the recent weakening in benchmark WTI prices, is of great interest.

Chang Jihak, senior executive vice president of Hyundai Oilbank, said Middle East crudes could drop to 70% of South Korea’s total crude imports, down from 85% so far this year, while Wang Pei, deputy general manager of research and strategy at China’s Unipec, said Asia has already become the top destination for US grades in the first half of 2017, a trend she expects to continue.

“The US, with abundant non-conventional resources, has a great potential to become the next major crude suppliers [for Asia]," she said at the conference.

The Middle East producers, for their part, say they are not sweating the potential changes in trade flows, with Kuwait Petroleum Corporation’s Deputy Managing Director Waleed al-Bader telling Platts on the sidelines of APPEC that rising demand from Chinese independent refiners would help his company’s medium sour crudes find homes.

Furthermore, several Middle East companies have invested in refinery projects in Asia to secure outlets for their oil. KPC, for instance, has purchased stakes in Vietnam’s 200,000 b/d Nghi Son refinery, which is expected to start commercial operations by the end of March 2018.

Iraq’s flagship Basrah Light, meanwhile, remains one of Asia’s favorite grades, and Musawi said the country’s crude sales arm, State Oil Marketing Organization, will promote bigger sales of the grade to expand Iraq’s market share in Asia. “Basrah is selling well,” he said. “Asian demand remains strong.”

The interplay between these eager sellers and “show me” buyers played out throughout the conference and into the steamy nights each day at the various soirees and happy hours around town hosted by trading companies, oil producers, refiners, brokerages and consultancies.

The conversations will continue in the months ahead and likely remain in the forefront at next year’s APPEC conference, as many analysts project a buyers’ market for crude in 2018, with supply outstripping demand.

"A sharp decline of inventories next year looks unlikely,” said the International Energy Agency’s chief OPEC analyst, Peg Mackey.