The Middle East will hold its position as the main crude oil supply source for Asia, a key region for global oil demand growth, despite increasing supplies from the US, OPEC Secretary General Mohammed Barkindo told S&P Global Platts.
“Of course, with the increase in US production, the US has become a new exporter to Asia, with currently over 1 million b/d in crude exports. However, US export levels still remain far below levels seen from the Middle East,” Barkindo said in a written interview with Platts ahead of the Asia Pacific Petroleum Conference in Singapore over September 9-11.
“Looking ahead, growing oil demand in Asia will have to be met by various regions, however, the Middle East will continue to be the main source of energy supply.”
US crude oil has increasingly become a staple for many Asian refineries, with the sharp increase in US crude procurement seen from refiners in South Korea, Taiwan, India and Thailand this year.
South Korea’s US crude oil imports especially soared nearly fourfold to 75.009 million barrels in the first seven months of 2019 from 19.47 million barrels a year ago, making it Asia’s biggest buyer of US barrels this year.
However, South Korean refiner sources said there was a limit to how much more light sweet US crude the companies could take as South Korean refineries are designed to process mainly medium sour Middle Eastern crude oil.
“Historically, the bulk of oil imports to Asia have come from the Middle East,” Barkindo said.
He noted that the share of Middle East crude exports to Asia remained at around 60% in 2018, unchanged from the level before the Declaration of Cooperation, or DoC — a production cut agreement between OPEC and non-OPEC countries – which started in 2017.
“This clearly shows that the Middle East remains the main supplier of crude oil to Asia,” Barkindo said, adding that Middle East oil supplies to other countries have slightly declined since the start of the production cut accord.
STRAIT OF HORMUZ
Addressing Asia’s growing concerns over the potential supply disruptions, specifically through the Strait of Hormuz, amid ongoing tensions between Washington and Tehran, Barkindo said OPEC would make sure the Middle East-Asia transport networks operate at full capacity.
“It is of utmost importance that all key transport routes remain secured and fully functional to ensure that the vital energy supplies of our Member Countries make it in a timely and efficient fashion to their customers who rely on these products every day to fuel their growing economies,” he said.
Asia’s oil supply security came under the spotlight on June 13 when two vessels, including one operated by a Japanese shipping company, were attacked just outside of the Strait of Hormuz.
China, India, Japan, South Korea, and Singapore were the largest destinations for crude oil moving through the Strait of Hormuz to Asia in 2018, accounting for 65% of all Hormuz crude oil and condensate flows in that year, according to the US Energy Information Administration.
STABILIZING OIL MARKETS
When asked about whether the current OPEC/non-OPEC production adjustment decision is working to ensure more balanced demand and supply, Barkindo said the July 2 decision “sent a clear message to the global oil market that these 24 participating nations are fully dedicated to achieving lasting stability in the global oil market.”
“These noble efforts will continue to provide fertile ground for stability and growth in the global oil market while supporting economic expansion around the world,” he added.
A key OPEC/non-OPEC monitoring committee meeting will take place in Abu Dhabi this week, which delegates have said will likely examine if further action is needed, following the recent tumble in oil prices.
The committee, co-chaired by Saudi Arabia and non-OPEC Russia, is tasked with monitoring market conditions and assessing compliance with production quotas. It will meet September 12 on the sidelines of the World Energy Congress.
The production accord, which OPEC signed with Russia and nine other non-OPEC countries in December, commits the 24-country coalition to 1.2 million b/d in supply cuts through March 2020.