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Highlights

Asian refiners fret over possible cut in Saudi term crude volumes

South Korea, China seen holding adequate oil reserves

India refiners more concerned about price rise than Saudi supply

Singapore — Asian oil consumers are unlikely to press the panic button following the latest attacks on Saudi Arabia's critical oil infrastructure as major Saudi crude buyers in both Northeast and South Asia hold adequate oil reserves, while companies have a wide range of alternative supply sources.

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Asian refiners could potentially see their term Saudi crude volumes fall short after the OPEC kingpin confirmed Saturday the temporary loss of 5.7 million b/d of oil production after attacks on its facilities, industry officials and Asian refinery sources told S&P Global Platts Sunday. However, major Northeast Asian buyers -- China, South Korea and Japan -- hold sufficient crude reserves to cover any shortage of Saudi oil for a few months, the officials and sources said.

SOUTH KOREA

"Saudi Arabia might not be able to fully meet the contractual term volumes for cargoes loading this month and possibly next," said a trading desk manager at a South Korean refiner based in Singapore.

"However, they [Aramco] have adequate inventories to maintain [sufficient level of] exports and we also have enough stockpiles to cover for several months, say at the very least four months," he added.

South Korea has been receiving on average 25.49 million barrels/month of crude oil from Saudi Arabia so far this year, while the country's crude stockpiles stood at 49.704 million barrels as of end-July, according to latest data from state-run Korea National Oil Corp.

South Korea's crude oil stockpile

"With close to 50 million barrels in crude inventories, that's roughly enough to cover around 5 months 'in worst case scenario' of Saudi possibly cutting term supply volume to Korea by half," a market research manager at Korea Petroleum Association based in Seoul said.

Adding to South Korea's relief, the country's rigorous efforts to diversify crude import sources saw the share of Middle Eastern crude in the monthly procurement basket fall below 68% in recent months, compared with more than 85% in 2015, KNOC data showed.

South Korea is capable of sourcing medium and heavy sour crude elsewhere like Mexico and Russia's Urals, the trading desk manager said.

Refiners including Hyundai Oilbank and SK Innovation have been regularly buying heavy sour Maya crude from Mexico this year. South Korea has imported 25.45 million barrels of crude from Mexico over January-July, KNOC data showed.

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CHINA

Chinese state-run and independent refiners said the companies expect the Saudi supply disruption would be a short one, while China's current inventory could cover any near-term shortfall.

"We need to know exactly how long the Saudi supply interruption will last. If just for 3-5 days, China will have enough commercial [reserves] and SPR to sustain refining operation," said a Beijing-based executive with Unipec, the trading arm of Sinopec.

Satellite data from Ursa, which can observe changes in surface-based storage facilities, showed that China's crude stocks stood at 669.6 million barrels at the end of July. This was 2.18 million barrels lower than that in end-June, but 34.78 million barrels higher than the level a year earlier, Platts reported previously.

"Volume wise, China has high stocks and SPRs to deal with immediate hits, if any, of potential Saudi volume reduction," said Kang Wu, head of Asia analytics at S&P Global Platts Analytics.

"From all the information available currently, only the downstream facilities were attacked. I don't think the suspension will last long. We will know on Monday," a Shandong-based independent refiner said.

In addition, China is more than capable of sourcing medium and heavy sour crudes outside the Middle East.

The country's independent refiners, for one, continued to take heavy sour grades from Canada such as Canadian Access Western Blend, Borealis Heavy Blend and Cold Lake Blend.

The independent refiners total imports of the three Canadian grades surged 230% year on year to 723,000 mt in January-August, Platts data showed.

INDIA

In South Asia, Indian refiners' wide range of crude import sources and flexible feedstock procurement strategies meant that the companies were more concerned about a potential global price spike than the cutback in Saudi supplies to the companies.

"The [major] concern is not about sourcing cargoes - in the event supplies from Saudi Arabia is disrupted - but that prices will go up even from other sources," a senior official at a state-run Indian refiner told Platts.

Middle East crude oil OSPs for Asian buyers

Various Middle Eastern crude official selling prices often trend in line with Saudi Aramco OSPs.

Earlier this month, Iraq's State Oil Marketing Organization raised its October OSP for Basrah Light bound for Asia by 30 cents/b, following Aramco's decision to raise the October OSP for its Arab Light and Medium grades by 60 cents/b and 30 cents/b, respectively.

"The dependence of refiners like Nayara and Reliance on relatively lighter crudes from Saudi Arabia is not that much. So even if there is a supply disruption, the top private refiners don't have much of a challenge," a senior official at a private Indian refiner told Platts.

"We have to see how much of that disruption affects prices of heavy crudes from other origins that we normally buy," the senior official added.

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

--Oceana Zhou, oceana.zhou@spglobal.com

--Sambit Mohanty, sambit.mohanty@spglobal.com

--Edited by Claudia Carpenter, claudia.carpenter@spglobal.com