Thai, Japanese refiners eye more US crude to support trade talks, cut Mideast reliance

Thai and Japanese refiners are keen to continue actively purchasing US crude for the rest of the year to capitalize on the competitive pricing structure of sweet crude and to lower their dependence on Middle East barrels, all while supporting their respective governments' trade negotiation initiatives with Washington, feedstock managers and crude slate strategists at four major Thai and Japanese refiners, including PTT and ENEOS, said over Sept. 29-Oct. 2.

Thailand is actively pursuing diversification strategies to lessen its dependence on Middle Eastern crude, especially following a sharp decline in earnings attributed to geopolitical tensions, according to refinery feedstock managers in the country. The Japanese refining industry has also intensified efforts to reduce the country's overreliance on Middle Eastern crude oil, in the wake of the escalating Iran-Israel conflict, feedstock managers and crude slate strategists at Japanese refiners said.

In Thailand, state-run oil giant PTT has established a "War Room" to monitor global economic conditions and refine its sourcing strategies, including an increased focus on US crude. Meanwhile, Japanese refiners have notably increased their purchases of US crude so far this year, refinery feedstock managers in the country said.

In August, Thailand imported 146,682 b/d of mostly light sweet crude from the US, up 44.7% from a year earlier, according to the latest data from Thai customs. In the first eight months, US crude purchases rose 30.5% year over year to 151,250 b/d, making up almost 16% of the total crude imports of 956,758 b/d over January-August, the Thai data showed Sept. 26.

Japan took 68,918 b/d of WTI Midland and West Texas Light (WTL) crude in August, slipping 7.8% from a year earlier but above the three-year average of 62,497 b/d, latest data from the Ministry of Economy, Trade and Industry showed. Japan's US crude imports over January-August rose 42.9% year over year to 85,017 b/d, METI data showed Sept. 30.

"The ample WTI and WTL intake not only reflects a strategic pivot toward the US as a reliable non-[Middle East] supplier but also aligns with the broader goal of mitigating geopolitical risks associated with volatile regions," said a feedstock inventory manager at ENEOS Oct. 2.

Attractive prices

As Thai and Japanese refiners seek to optimize their feedstock costs and reduce reliance on Middle Eastern grades, the favorable pricing complex for US crude imports is likely to drive continued interest in purchasing WTI Midland and WTL, traders based in Singapore, and Japanese and Thailand-based refinery feedstock managers said over Sept. 30-Oct. 2.

The Brent-Dubai price spread had turned negative in late August, Platts data showed. This shift indicates that various sweet crudes from the Americas, North Sea, and Southeast Asia are becoming increasingly economical compared to Dubai-linked Middle Eastern grades.

Platts, part of S&P Global Commodity Insights, assessed the Brent-Dubai exchange of futures for swaps, or EFS, spread -- a key indicator of Brent's premium or discount to the Middle Eastern benchmark -- at minus 8 cents/b Aug. 27, marking its lowest level since minus 11 cents/b March 21. The EFS has averaged 76 cents/b to date in the third quarter, compared with the Q2 average of $1.43/b.

The spread between WTI Midland and Murban crude was assessed at minus 31 cents/b on Oct. 1, significantly weaker than the year-to-date high of $2.51/b observed in June, Platts data showed.

Diplomatic tool

PTT's significant increase in US crude imports, which reached a record high of 7.3 million barrels in June, positions Thailand strategically in its ongoing trade negotiations with Washington, an investor relations manager at the company told Platts Oct. 1.

Following successful negotiations, Thailand has managed to reduce the US reciprocal tariff from 36% to 19%, effective Aug. 6, according to media reports and refinery sources in the country. By leveraging its commitment to importing US crude, Bangkok could further strengthen its negotiating position as discussions on additional tariffs and the opening of the Thai market to US imports continue, a feedstock strategist at PTT said Oct. 1.

As for Japan, although Washington agreed to a 15% import tariff rate on Japanese goods, Japan's robust US crude imports this year would likely help Tokyo work on specific trade negotiation details going forward, according to a feedstock manager at a major Japanese refiner and a market analyst at an integrated Japanese trading company based in Singapore Oct. 2.

Japan's top 10 crude suppliers (Unit: b/d)

Source: Ministry of Economy, Trade and Industry