Here Comes Oil Demand: Asia Rushes To Buy Crude After OPEC+ Cuts, As China Imports Soar To 2nd Highest On Record

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by Tyler Durden
Thursday, Apr 13, 2023 - 02:57 PM

Is the perfect storm for oil finally coming: just as Russian oil exports are collapsing, oil demand out of Asia, and China in particular, is soaring.

As Bloomberg reports, the biggest oil importers in Asia have been busy buying June-loading spot crude cargoes from the Middle East since top OPEC+ producers announced additional cuts beginning in May and after Saudi Arabia hiked again the price of its term cargoes going to Asia.Customers from China, Japan, and Thailand have been snapping spot cargoes from Middle Eastern producers such as the United Arab Emirates (UAE) and Qatar. The higher demand for spot Middle Eastern supply has pushed up the regional Dubai benchmark, according to the traders.

Russia’s crude is also a favorite with some Asian refiners, with spot offers for the ESPO grade also on the rise, traders told Bloomberg.

As a reminder,  the biggest OPEC producers in the Middle East and several other members of the OPEC+ pact announced early this month a total of 1.16 million bpd of fresh production cuts. Saudi Arabia, OPEC’s de facto leader and top global crude exporter, will cut 500,000 bpd and said that the move was “a precautionary measure aimed at supporting the stability of the oil market.” The voluntary production reductions include big cuts, beginning in May and lasting through the end of 2023, from the top Middle Eastern producers who typically export sour and more heaver varieties of crude.

As OilPrice notes, Saudi Arabia has signaled that it will keep supplying at least several refiners in North Asia with full contractual volumes of crude in May despite the Saudi production reduction. Saudi Arabia, however, supplies its crude under long-term contracts.

After the latest cuts were announced, Saudi oil giant Aramco also raised its official selling prices (OSPs) for its crude going to Asia in May. The higher prices could increase the upward momentum for Middle East medium and sour grades while the cuts tighten the market for those grades just as demand in Asia is set to rebound.   

Separately, overnight China reported that crude oil imports in March surged 22.5% from a year earlier to the highest since June 2020, as refiners stepped up runs to capture fuel export demand and in anticipation of a domestic economic recovery.

Crude imports in March totaled 52.3 million tonnes, or 12.3 million barrels per day (bpd), according to data from the General Administration of Customs. This compares with 10.1 million bpd of crude imported in March last year Reuters noted.

Total crude imports for the first quarter stood at 136.6 million tonnes, a 6.7% increase over 127.9 million tonnes in the same period last year.

The imports were in line with expectations of higher refinery runs and product inventory draws on improved demand following the lifting of COVID restrictions late last year.

Analysts pointed to a sharp increase in refined fuel product exports as a key reason behind the jump in crude imports. Refined product exports jumped 35.1% to 5.5 million tonnes for March, versus 4.1 million tonnes in the same month of 2022.

"Refined fuel exports will increase, as currently the margins on exported gasoline are quite positive," said Xu Peng, a refined products analyst at China-based commodities consultancy JLC. "The growth of diesel demand has been less than expected, while (domestic) gasoline consumption was relatively flat," Xu added.

Kerosene consumption had also been widely anticipated to increase through March, as the country's aviation sector rebounds following the lifting of travel curbs. Analysts also cited lower costs of Russian crude as a factor driving China's imports.

"Lower prices and discounted Russian oil along with improving demand prospects are behind the rise," stated analysts from ANZ Bank in a client note.

Crude demand had also been expected to increase at big private refiners such at Zhejiang Petrochemical and Hengli Petrochemical which are reportedly operating at or above official processing rates to profit from stronger refining margins.