In a rare incidence, spot crude oil prices in the Middle East are trading at much higher levels than the rest of the world due to soaring demand from China and Japan. Asia’s two major economies have started restocking of energy products ahead of Saudi Arabia’s self-motivated July production cut, in addition to OPEC’s (Organisation of the Petroleum Exporting Countries) planned output slash announced earlier this year.
These production cuts, coupled with the United States’ additional quantity release from the strategic reserves and a decline in the number of operational rigs, are expected to dwindle crude oil supply in the near future, despite burgeoning demand in the post-pandemic global economic recovery, for which Asia could be the epicenter. Arising from Russia’s invasion of Ukraine and subsequent sanctions imposed by the Western nations’ sanctions on Moscow, most economies in Europe and the Americas are struggling with high inflation and under-pressure manufacturing sector amid a paucity of fresh investment and weak domestic demand.
Refineries in China and Japan have increased their imports of crude oil from the Middle East in the last few weeks. Consequently, Oman crude for delivery in August is quoted at US$ 2 per barrel higher than the Dubai benchmark, which is 10 times higher than the maximum premiums of US cents 20 per barrel in normal days. The premiums have almost tripled in just one week from the levels of US cents 60-70 per barrel around mid-June. Similarly, the premiums for Abu Dhabi’s Murban grade oil have also spiraled in the last few weeks.
| Region-wise crude oil supply in 99.82MMbpd |
| Region | Share (%) |
| OPEC | 34 |
| OECD (ex. United States | 12 |
| United States | 19 |
| Russia | 11 |
| Rest of the world | 24 |
Source: Trade; MMbpd = million barrels per day
“International crude oil prices started higher on Monday in Asian trade as Russia faced a brief rebellion by a private military group over the weekend, raising supply concerns. However, the recession and demand concerns could outweigh signs of supply-side tightness. Natural gas futures for the near month delivery on the New York Mercantile Exchange (Nymex) have started marginally higher early Monday in Asian trade on lower US output and rising weather-related demand in Texas,” said a report from Reliance Money.
Crude oil prices are rising in the Middle East despite worldwide recessionary concerns as the International Energy Agency (IEA) forecasted global energy demand to rise by 2.2 million barrels per day (MMbpd) to over 102 MMbpd on the post-pandemic economic recovery. In yet another fundamental support to the rising crude oil prices, data from Hughes showed that the Us energy firms cut the number of rigs by 6 to 546, operating for an eighth week in a row, the lowest since April 2022.
Refiners in the frayAccording to reports, major petroleum refiners in Asia, such as Rongsheng Petrochemical from China and Formosa Petrochemical from Taiwan, have joined hands with processors in Japan and Thailand to book fresh crude oil consignments in the Middle East. Rising Asian orders have also sparked activity in the Middle East crude oil markets, as demand from local refineries has increased in the last few weeks.
The reports further stated that Chinese companies, including Sinopec, TotalEnergies SE, and Shell Plc, have participated in bids in a larger way in the Dubai crude partial contracts in the Middle East. China’s Sinopec is trading aggressively through its leading subsidiary Unipec. “Such aggressive bids were not seen from these companies in the past,” said a report.
Traders in Oman have witnessed a large number of ships with a volume of around 500,000 barrels of crude oil being loaded and transported to the importing countries. Thus, the region is witnessing high export orders, especially from Asian countries for Oman, Murban, and other Middle Eastern grades of crude oil. These orders are being executed gradually in phases, with a large pool of buyers and sellers. Some of these orders are meant for delivery in the weeks ahead. Reports indicate that two Upper Zakum shipments and over 40 Oman cargoes have been delivered during the last few days from the United Arab Emirates, and many more such cargoes are in various stages of delivery.
Burgeoning oil demandThe IEA forecasted the world oil demand would rise by 2.2 MMbpd in 2023, reaching an average of 102 MMbpd, which is 200,000 bpd higher than the previous estimates released in April. China’s demand recovery continues to surpass expectations, as the country reached an all-time record in March at 16 MMbpd. Although OECD countries are expected to return to growth in 2023, their average increase of 350,000 bpd is overshadowed by the non-OECD gains of 1.9 MMbpd.
Significant outages in Iraq, Nigeria, and Brazil were only partially offset by increases elsewhere, resulting in a global oil supply decrease of 230,000 bpd to 101.1 MMbpd in April. Steeper losses are projected for the upcoming months due to wildfires shutting in Canadian barrels and additional cuts from some OPEC+ producers taking effect. Between April and December, OPEC+ oil supply is expected to decline by 850,000 bpd, while non-OPEC+ supply rises by 710,000 bpd. Overall, the global oil supply is anticipated to expand by 1.2 MMbpd in 2023, primarily led by the United States and Brazil.
In April, Russian exports of crude and refined oil products slightly increased to a post-invasion high of 8.3 MMbpd. Crude shipments saw an increase of 250,000 bpd, offsetting a decline in product exports of 200,000 bpd. Estimated oil export revenues rose by US$1.7 billion to US$15 billion due to higher crude oil exports and a narrower Urals discount.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
