Russia And Middle Eastern Oil Sources Competing For Asian Business
Japanese and South Korean refiners have increased oil purchases from Russia, eroding the dominance of Middle Eastern suppliers and electing for a more competitive crude source that is three weeks closer by ship. While Russian exports have surged over the last 6 months, the Middle East remains dominant, with total Middle East output in June around 19.9 million barrels, while Russia's output was 10.3 million barrels, peaking at 330,000 barrels a day in June.
By Dave Brown - Exclusive to OilInvestingNews.com Japanese and South Korean refiners have increased oil purchases from Russia, eroding the dominance of Middle Eastern suppliers and electing for a more competitive crude source that is three weeks closer by ship. The Japanese Ministry of Economy, Trade and Industry indicates the country purchased an unprecedented 241,000 barrels a day, up 61 percent from a year ago. South Korean imports of Russian crude climbed to a record level of 179,000 barrels a day in May, equivalent to 7.3 percent of the nation's supplies. The first 2,757 kilometers of the East Siberian-Pacific Ocean (ESPO) pipeline project was completed last year costing $12.27 billion with an export terminal costing $1.74 billion. With the entire project estimated at $26 billion, this pipeline is already boosting competition between Russia and the Middle East, the world's two largest oil suppliers. According to shipping rates and data compiled by Bloomberg, North Asian processors can access the Russian oil, for about $1 a barrel less than Dubai crude. Russia started loading tankers in December at Kozmino, the port located about 600 kilometers from South Korea and Japan. Over the last six months, Japanese refiners have purchased about 20 percent of the crude and South Korea took 39 percent. While ESPO exports have surged, peaking at 330,000 barrels a day in June, the Middle East remains dominant, with total Middle East output in June around 19.9 million barrels, while Russia's output was 10.3 million barrels. Middle East producers have lowered prices in response to offset the Russian competition. Abu Dhabi National Oil Co has cut the prices on June Murban crude, the emirate's largest export grade, to $74.80 a barrel, the lowest level since last October. ESPO contains less sulfur than Middle Eastern oils, making it less of a pollutant and more attractive to refiners. Asian refiners are also buying the Russian oil because they have units capable of upgrading fuel oil, the residue from distilling crude, into higher-value products such as diesel and gasoline. ESPO's fuel-oil yield is about 47 percent, similar to that of Oman crude. EIA Petroleum Status Report Oil inventories declined 4.96 million barrels in the previous week to 358.2 million barrels. The decline in inventories was partially attributable to the disruption of output and deliveries in the Gulf of Mexico following Hurricane Alex. The storm is the earliest hurricane of the Atlantic season since 1995, after making landfall in northeastern Mexico June 30. Almost 421,000 barrels of daily oil output, or 26 percent of Gulf of Mexico production, was shut-in on the day the storm hit shore.