(The opinions expressed here are those of the author, a columnist for Reuters.)
By Clyde Russell
LAUNCESTON, Australia, March 20 (Reuters) - 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 been rising.
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 March 14.
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 basis.
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 exports.
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 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 last year.
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 lower.
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 top producer.
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 coming months.
Editing by Richard Pullin