Asia’s crude oil imports set for soft September

Asia’s crude oil imports are set to decline for a second month in September as the world’s top-importing region continues to lag the demand recovery in other parts of the world.

Seaborne imports in Asia are expected to decline to 31.71 million barrels per day (bpd) in September from August’s 32.34 million bpd, according to data compiled by commodity consultants Kpler.

If the final outcome for September is in line with Kpler’s current estimate, it will be the second-weakest month for Asia’s crude oil imports so far this year on a barrels per day basis, beating only July’s 30.91 million bpd.

September is usually a soft month for imports in Asia as the month falls between the summer and winter peaks, but this September’s imports are also down on the 32.12 million bpd from the same month in 2020, and the 32.33 million bpd for September 2019.

Asia’s lacklustre imports stand in contrast to strongly rallying crude oil futures, with the global benchmark Brent contract LCOc1 settling at $79.53 a barrel on Monday, the highest since October 2018.

The paper crude market is being driven higher by media reports of an energy crisis in Europe, highlighted by shortages at petrol stations in Britain, and the ongoing outages of production in the U.S. Gulf of Mexico after Hurricane Ida.

The situation in Asia is quite different, with physical traders reporting no shortage of available cargoes and refiners reluctant to buy more crude, given demand for refined fuels in many countries remains subdued amid lockdowns and travel restrictions as part of efforts to combat the ongoing coronavirus pandemic.

This contrast can be seen in the pricing of Brent compared to Middle Eastern crudes, with the Brent-Dubai exchange for swaps DUB-EFS-1M, a measure of Brent’s premium to Dubai crude, ending at $4.30 a barrel on Monday, the highest since July 7.

Oman crude futures traded on the Dubai Mercantile Exchange OQc1 ended at 76.48 a barrel on Monday, and are up 49.8% since the end of last year, while Brent has rallied 53.5% over the same period.

This means they were at a discount of $3.05 a barrel to Brent futures based on Monday’s respective closing prices, while the discount was 74 cents at the end of last year.

Oman futures tend to switch to a premium to Brent when Asian crude demand is strong, as it was in the last quarter of 2019, prior to the coronavirus outbreak that started in China in December of that year.

If Asia’s total crude demand is soft, the question then becomes which countries are looking weakest, and what are the prospects for their recovery.

Among major Asian crude importers, India looks to be lagging in September, with Kpler estimating imports of 4.09 million bpd, down from August’s 4.32 million bpd. Refinitiv Oil Research is forecasting Asia’s second-biggest crude importer will land 3.87 million bpd in September.

China, the world’s biggest crude importer, is forecast to have seaborne arrivals of 9.43 million bpd in September by Kpler, which is down from August’s 9.96 million bpd.

Refinitiv expects China’s seaborne imports at 9.86 million bpd in September, with pipeline supplies from neighbouring countries coming in at an expected 964,000 bpd, giving a combined total of 10.87 million bpd, slightly higher than the official August figure of 10.53 million bpd.

China looks to be roughly steady in September, as is Japan, with Refinitiv expecting imports of 2.68 million bpd, slightly higher than August’s 2.62 million bpd.

South Korea, which is vying with Japan for the title of Asia’s third-biggest crude importer, is expected by Refinitiv to land 3.08 million bpd in September, up from 2.63 million bpd in August.

Singapore, home to three largely export-orientated refineries, is expected by Refinitiv to import 725,000 bpd in September, down from August’s 786,000 bpd.

The overall message from Asia’s crude oil imports in September is that there is still little evidence of a recovery in demand in the region.

India may start to import more from October onwards as the economy recovers from its latest coronavirus outbreak, and Japan and South Korea may also buy more crude in order to build up stocks of fuels such as heating oil prior to the Northern Hemisphere winter.

The outlook for China is less certain, given the yet to be quantified impact of Beijing’s decision to auction crude from its strategic reserve.

China’s crude demand may increase with the start up of new refining units and signs that smaller, independent refiners are once again in the market for imports, but if Beijing steps up auctions that could dampen import demand.
Source: Reuters (Editing by Christian Schmollinger)


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