North Asian refiners reassert confidence over stable Middle East crude import logistics

Major North Asian refiners said that their latest logistics for Middle Eastern sour crude cargoes are "all on schedule," with refinery feedstock managers and analysts expressing renewed confidence that neither Iran nor Israel will take actions that could compromise East Asia's neutrality.

Benchmark oil prices plummeted overnight as the market started to recognize Iran's current disinterest in blocking the Strait of Hormuz, according to refinery sources and analysts in South Korea, China, and Japan June 24.

Asia's top economies -- China, Japan and South Korea -- would be significantly impacted if sour crude flows were disrupted. The Asian refining industry and trading community would remain confident that both Iran and Israel are likely to refrain from actions that could trigger major Asian political or even military interventions, refinery sources added.

Although US President Donald Trump stated that Israel and Iran have agreed to a ceasefire, geopolitical tensions and uncertainties regarding trade flows are expected to persist for many months and even years. However, the sharp decline in oil prices overnight, coupled with broadly positive updates on tanker operations, has boosted Asian refiners' confidence in the stability of Middle Eastern sour crude flows to the Far East, according to feedstock managers at major Chinese, South Korean, and Japanese refiners, including S-Oil and ENEOS.

In Seoul, analysts and officials at the Korea Petroleum Association announced that there have been no disruptions to tanker operations between the Persian Gulf and South Korea, and all Middle Eastern crude cargoes purchased by local refiners are operating normally.

The Ministry of Trade, Industry, and Energy also assured that there have been no disruptions in oil and LNG imports, confirming that all oil tankers and LNG carriers serving South Korea are operating normally.

In Japan, at least three major refiners, including ENEOS, recently informed Platts that they might need to add between 5 million barrels and 40 million barrels of crude oil to their emergency stocks, in case the maritime passage of Middle Eastern sour crude to the Far East is severely disrupted.

However, the refiners indicated that all Middle Eastern crude cargoes bound for Japan are sailing safely without any issues. "At this time, we are able to procure the necessary crude oil without any issues," said a spokesperson at ENOES, adding that the country's top refiner is also actively diversifying crude supply sources by considering economic viability, stability of procurement, and compatibility with crude oil refining facilities, primarily based on Middle Eastern grades.

Still, one Japanese refiner said there is a very minor delay of around 5 to 10 hours for loading its Das Blend crude cargo. The buyer of the light sour Abu Dhabi grade declined to be identified due to the sensitive nature of spot cargo trades and logistics.

Meanwhile, Chinese trading companies and refiners are confident that Iran is unlikely to damage its own crude export cargoes or other Middle Eastern crude cargoes headed to China and Asia.

"There is nothing to gain [for Iran] from blocking the Strait of Hormuz, but a lot to lose by doing so," said a feedstock and refining margin strategist at a state-run refiner based in Beijing.

Japanese and South Korean refiners and analysts have stressed that Iran's National Iranian Oil Company used to be one of their key crude suppliers and a key trading partner before international sanctions were imposed.

Before the sanctions on Tehran, South Korea was among the top three buyers of Iranian crude oil and the largest importer of Iranian condensate in Asia.

In 2017, South Korea imported 148 million barrels of crude oil and condensate from Iran, according to data from the state-run Korea National Oil Corporation.

Iran was also Japan's sixth-largest crude oil supplier in 2017, with Asia's fourth-largest crude importer receiving an average of 172,216 b/d that year, according to data from the Ministry of Economy, Trade and Industry.

Prior to the sanctions, South Pars condensate, Iranian light crude, and Soroosh crude grades were regularly included in the feedstock mix for Japanese refineries.