Asia is buying more Middle East crudes as price advantage widens
Middle East crude oil exporters are re-building market share in the key Asia region, a trend likely to continue as the price advantage of local grades against those from the Atlantic Basin jumps to the most in eight yrs.
Top Middle East exporters such as Saudi Arabia, Iraq and Kuwait are seeing increased demand for their crude from Asia, while producers in the United States, Europe and Africa are suffering declining interest.
This dynamic is being driven by the strong rally in the main price benchmarks for Atlantic Basin crudes, with Brent futures ending at $84.55 a bbl on Monday, up 63.2% since the end of last yr, while West Texas Intermediate (WTI) finished at $84.05, up 73.2% so far this yr.
While key Middle East crude prices have also risen sharply this year, they are now priced at substantial discounts to the two main Atlantic Basin contracts.
One measure of this is the Brent-Dubai Exchange for swaps, which rose to $5.24 a bbl on Monday, the highest premium for Brent over Dubai since September 2013.
Effectively, this means any Asian-based refiner looking to buy oil today will be able to buy Middle East grades far cheaper than those from the United States, Africa or Europe.
They will also enjoy cheaper freight costs given that the Middle East is a far shorter sea voyage than coming from the west coast of Africa, Europe's North Sea or the U.S. Gulf.
Looking at physical spot prices for crude confirms the current dynamic, with Nigerian Bonny Light ending at $85.35 a bbl on Monday, while Abu Dhabi's Murban finished at $80.51, a discount of $4.84, which is more than double the $1.95 it was at the end of September.
The current pricing is likely to show up in crude flows in coming months, given cargoes are generally arranged up to two months in advance.
However, given the recent trend of cheaper Middle East crude relative to Atlantic grades, a shift in flows to Asia is already evident.
Middle East Gains
The Middle East's share of Asia's imports rose to 61.6% in October, up from 59.1% in September and well above the 2021 low of just 54% in May, according to data compiled by Refinitiv Oil Research.
In contrast, the share of crude from the West, which includes the Americas and Europe, dropped to 19% in October, the lowest this yr and down from peak share of 28.8% in February.
Africa's share of Asia's imports also dropped in October, slipping to 8.4%, also the lowest this yr and down from the peak share of 13.3% in April.
The issue for Asian refiners seeking cheaper Middle East crude is that in doing so they are likely to narrow the discount to other grades, or run into a lack of available cargoes.
Top Middle East exporters have been increasing output in line with the agreement by the OPEC+ group to lift production by 400,000 barrels per day (bpd) each month from August to December.
Saudi Arabia, the world's top exporter, boosted output by 100,000 bpd in October from September, while Iraq increased production by 70,000 bpd, the United Arab Emirates by 40,000 bpd and Kuwait by 30,000 bpd.
It's worth noting that the Organization of the Petroleum Exporting Countries (OPEC) didn't lift output in October by as much as it could have under the terms of the wider OPEC+ agreement, but this was largely because of lower production in its African members, including Nigeria and Equatorial Guinea.