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UAE becomes Japan's largest crude supplier in May as Iran oil imports halt

Highlights

Crude imports from UAE, Ecuador replace supply from Iran

Abu Dhabi grades more expensive than Iranian Heavy crude

First intake of Cameroon's Ebome crude, Australia's Wheatstone condensate

Tokyo — The UAE became the largest crude supplier to Japan in May after it halted imports of Iranian oil, creating a need for some its refiners to search for light sour crudes to blend with heavy grades from Ecuador.

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Japan's crude imports from the UAE surged 66.1% year on year and were up 42.8% month on month to average 1.03 million b/d in May, preliminary data released Friday by the Ministry of Economy, Trade and Industry showed.

The UAE was the largest crude supplier to Japan in May for the first time since June 2016, while Japan hiked its total imports in May to the highest level since July 2015, a METI official said.

Japan imported 1.5 million barrels of crude from Ecuador in May -- including Oriente crude for the first time since May 2015 at 376,080 barrels, the METI data showed. Total Ecuadorian crude imports in May, which also included 1.14 million barrels of Napo crude, were the highest since April 2017, the METI official said.

Refiner Fuji Oil, which had been one of Japan's major importers of Iranian crude, has said it is using Napo as the main basis for replacing Iranian Heavy, blending it with other grades from the Middle East, including Abu Dhabi crudes and Qatar Marine.

Fuji Oil finds Ecuadorian crude "very heavy" as a replacement for medium or medium-heavy crudes from Iran and is "looking at Upper Zakum and Banoco Arab Medium as replacement for Iran," a source familiar with the matter said.

Japanese refiners completed their imports of Iranian oil by mid-April before the US allowed sanctions waivers to Iran's top oil buyers to expire in early May.

Japan last suspended Iranian oil imports over November-January, with refiners importing last barrels from Iran early last October. Confusion surrounding shipping, insurance and banking rules under the US sanctions kept some other countries from resuming imports after the US granted the waivers on November 5 last year.

EXPENSIVE ALTERNATIVES

Japan's choice to ramp up crude purchases from the UAE to make up for the loss of Iranian barrels may have been a costly decision due to the recent upswing in Abu Dhabi crude official selling prices.

The breakdown of Japan's crude imports from the UAE showed that Asia's third-biggest energy consumer received mostly light sour Abu Dhabi grades Murban and Das Blend. The country took 500,508 b/d of Murban and 346,508 b/d of Das Blend in May, comprising 83% of its total imports from the UAE in the month.

Japan typically bought mostly Iranian Heavy crude from Iran prior to the end of the US sanctions waiver.

The light sour Abu Dhabi grades have been fetching increasingly higher premiums over Iranian Heavy during the last few trading cycles, possibly making a case for Japanese refiners to consider looking for cheaper alternatives later in the year.

The spread between Abu Dhabi National Oil Company's Asia official selling price for light sour Murban crude and National Iranian Oil Company's OSP for Iranian Heavy was $2.98/b for cargoes loaded in May, up from $2.46/b for April cargoes and $2.40/b for March shipments, S&P Global Platts data showed.

The Murban OSP premium over Iranian Heavy OSP for May was the highest differential since $3.05/b for January-loading cargoes.

"It's never easy finding cheap alternatives because Iranian crude and condensate have always been among the most affordable feedstock grades ... but Japanese refiners would need to diversify crude procurement options because Abu Dhabi grades are indeed rather expensive," a trading desk manager at a Japanese refiner said.

SOUTH PARS REPLACEMENT

Several light and ultra-light crude grades were also seen entering Japan's feedstock slate for the first time in May as the country seeks replacements for Iran's South Pars condensate.

Japan in May imported its first-ever cargo of Australia's Wheatstone condensate, according to the METI data. Wheatstone condensate has a gravity of 61.5 API and sulfur content of 0.0044%, METI data showed. The grade in prior months was typically sold to end-users in South Korea, China, Singapore or the UAE.

Japan also took its first cargo of Cameroon's Ebome crude in May, according to the METI data. Ebome crude has a gravity of 53.7 API and sulfur content of 0.038%, METI data showed.

-- Takeo Kumagai, takeo.kumagai@spglobal.com

-- Gawoon Philip Vahn, phil.vahn@spglobal.com

-- Andrew Toh, andrew.toh@spglobal.com

-- Edited by Wendy Wells, newsdesk@spglobal.com