ASIAN refiners are on course to nearly double their purchases of US crude for September from a month earlier, a move that stands to squeeze domestic fuel makers at a time when Americans are already facing record high pump prices.
Exports to Asia should see a notable rise next month, according to ship and commodity tracking companies Kpler, Vortexa and Sparta Commodities. Traders estimate that the total amount of US-to-Asia trades for loading in September is more than 40 million barrels compared with a forecast 22 million barrels in August. The increase comes as prices of competing Middle Eastern grades like Abu Dhabi’s Murban crude have surged, making US supply more competitive.
At least one of the recent purchases was for oil to be loaded on a smaller Aframax tanker capable of taking a quicker route via the Panama Canal and Pacific Ocean, rather than the Atlantic Ocean. That suggests a degree of promptness in Asia’s demand, traders familiar with the recent business said.
As the war in Iran stretches into its sixth month with no deal to reopen the Strait of Hormuz, the Asian buying spree puts strain on US supplies, likely pushing up prices. Domestic refiners are already running near record rates and plan to maximize output into the fall. Higher crude costs tend to filter down into pump prices, and seasonally gas prices are already at a record high. More Asia buying will likely also divert supplies away from Europe.
Asian refiners became a mainstay buyer of US oil after the Iran war disrupted their usual Middle Eastern supplies, but fuel makers in the region backed off on purchases when a memorandum of understanding between the US and Iran saw flows through the strait resume. That surge in US exports to Asia contributed to record amounts of American crude sent overseas earlier this year.
Sour crude grades-similar in quality to Mideast oil supplies-stand to face the biggest squeeze, especially with no additional releases from the US Strategic Petroleum Reserve planned, according to Vortexa Senior Oil Market Analyst Rohit Rathod. ‘For domestic refiners running at high rates, this could mean tighter sour crude availability,’ Rathod said.
Benchmark US sour grade Mars is currently trading at a $2.50-a-barrel premium to benchmark US oil grade West Texas Intermediate, about $2 away from a three-month high, according to data from Syntex Energy. Still, the price is well below the $18 premium refiners were paying in early April as US exports to Asia soared. ‘For US refiners, Mars will be at the epicenter of this tightness,’ said Sparta Oil Market Analyst Nikolas Plonski.
US medium sour crude prices strengthened in early July as releases of similar grades from US reserves began to wind down. Those gains were later erased as prospects grew for a peace agreement to end the war, easing concerns over global supplies. Now with talks deadlocked, the strait still effectively closed and high refinery run rates, the tight US crude market has less supply to spare.
The US exported just over 4 million barrels of crude a day in the week to Aug. 14, up more than a million barrels a day from the prior week but well shy of the nearly 6.5 million barrels a day in late April, according to US government data. ‘The increase in volumes to Asia will likely come at the expense of flows to Europe, rather than resulting from a much stronger pace of exports,’ said Kpler Director of Commodity Research Matt Smith.
Imports of Venezuelan oil have met some US refiners’ demand for sour oil, and those flows are likely to continue, Rathod said.
Even with barrels flowing to US ports from overseas, the return of Asia’s oil buying could limit a seasonal build in America’s crude inventories that typically happens in the fall.