(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Clyde Russell
LAUNCESTON, Australia, March 20 The price of
Middle East crude oils being supplied to Asia appears too high
given an increase in supply from Iran, Iraq and rival Russia and
muted demand from refiners.
While benchmark Oman futures have declined 5 percent
since the start of the year to end at $102.93 a barrel on
Wednesday, the price relative to global marker Brent has
Brent is down 4.5 percent so far this year, but both it and
Oman have been trading in a fairly narrow range since January.
The Brent-Dubai exchange for swaps DUB-EFS-1M fell to
$3.75 a barrel on Wednesday, down from the year-high of $4.44 on
This shows that benchmark Middle East grades have been
rising relative to Brent, which stands at odds with signs that
the Asian market remains well-supplied amid what can best be
described as steady demand.
Seaborne crude arrivals in Asia in March have been assessed
by Thomson Reuters Oil Analytics at around 80 million tonnes,
equivalent to about 18.9 million barrels per day (bpd).
This is steady to levels in the same month last year and
marginally higher than February's flows on a barrels per day
With seasonal maintenance starting in Asia and refining
margins weak, it's hard to see demand for crude rising in the
next few months.
The profit for a Singapore refinery processing a barrel of
Dubai crude was at $5.64 a barrel in early trade Thursday, down
from $5.81 for the previous five days and also below the $5.90
365-day moving average.
While the maintenance of refineries may boost margins by
removing some product supply, it should have the opposite impact
on crude prices as fewer cargoes are purchased.
At the same time, supply appears to be rising, with Iran
taking full advantage of the thaw in its relations with Western
nations over its disputed nuclear programme to boost its
Iran's exports have exceeded the 1 million bpd allowed under
Western sanctions for the past four months, according to customs
and ship-tracking data..
Iran's four major Asian buyers - China, India, Japan and
South Korea - took a combined 1.16 million bpd in February, up
from 994,669 bpd in January.
Add in shipments of just over 100,000 bpd to Turkey and Iran
is easily exceeding the 1 million bpd limit, and is well up from
levels around 500,000 bpd from some months last year.
IRAQ BOOSTS SHIPMENTS
Iraq is also boosting exports, with April loadings expected
at 2.58 million bpd, up from 2.17 million bpd in March,
according to trade sources..
The country also plans to inaugurate a new loading platform
at its Basra port in the next few months, which could
potentially boost exports to closer to 4 million bpd, although
that level currently exceeds the nation's total output.
Russia is also adding more oil to Asian markets, with top
producer Rosneft saying on Feb. 6 that it will supply
180,000 bpd more to China this year, adding to the more than
300,000 bpd it shipped to the world's second-biggest crude user
With extra oil available and demand growth struggling in the
face of slower-than-expected economic growth in China and India,
it appears that oil prices for Asian consumers should be biased
Prices have been supported by concerns over Russia's moves
to re-absorb the Crimea part of Ukraine and the subsequent
ratcheting up of global geo-political tensions.
However, the risk is that these tensions ease and so far
there has been no impact on oil flows from Russia, the world's
It is almost as if there is a permanent risk premium built
into oil prices, all that shifts is the geographic location of
the current crisis, with the last year having seen concerns over
Libya, Syria and now Russia.
The risk is that this geo-political premium reduces, thereby
lowering oil prices.
Major Middle East producer Saudi Arabia did lower the
official selling price of its benchmark Arab Light grade to
Asian refiners for April-loading cargoes.
However, the 20 cents a barrel drop to a premium of $1.55 a
barrel to Oman/Dubai, the lowest since July last year, doesn't
totally compensate for the relative increase of benchmark Middle
East grades to Brent.
It seems likely that in the absence of any new geo-political
crisis, oil prices for Asian refiners are likely to fall in
(Editing by Richard Pullin)