Asian crude oil supply and demand balance tilt

Foreign media recently said that under the situation of sharp decline in crude oil prices and a sharp increase in the supply of crude oil, the balance of supply and demand in the Asian market is tilting toward the buyer. In the past, buyers had to be forced by large energy exporters; but today, buyers are benefiting from more favorable trading terms and discounts.

In the past four months, crude oil prices for shipments to Asia have fallen by a significant 25%. In this market, new crude oil transactions include other benefits, such as lower transportation costs and flexibility. Payment terms and less trade restrictions.

This contrasts sharply with the situation in recent years, when the demand for crude oil in the Asian region was strong, especially from China. At the same time, the supply of crude oil was not as abundant as it was today. This means that buyers in Asia have to face a premium.

At the same time, the global crude oil market is undergoing a wide-ranging transformation, that is, large-scale energy exporters have shifted to sell more crude oil to Asia, because North American regions have become increasingly energy-efficient thanks to the growth of shale gas production. The supply side is self-sufficient; as far as the European region is concerned, the region is facing difficulties in boosting economic growth.

Adi Imsirovic, general manager of London crude oil trading company Clearsource Commodity Services, pointed out that crude oil traders in Asia have become more confident and they are becoming “price makers rather than price receivers”.

The current development trend of the global crude oil market is that Saudi Arabia and other Middle Eastern oil producers are lowering the prices for Asian buyers. This situation has triggered concerns about possible price wars. But in addition to lowering prices, oil-producing countries have also been taking other stimulative measures to attract Asian crude oil consumers. For example, a flexible payment contract can directly benefit crude oil buyers because the buyer does not need to pay the full amount immediately.

In August of this year, Sinopec signed a 10-year deal with Kuwait to increase the company's crude oil purchases nearly double to 300,000 barrels per day. According to the Singapore dealers who are familiar with the situation of both parties, Kuwait has provided Sinopec with a “sweet spot” in this transaction, that is, the Kuwaiti side bears all the transportation costs. Under normal circumstances, shipping costs usually need to be fully borne by the buyer. According to the current rate, crude oil transport can reach a maximum of the equivalent of US$1.60 per barrel.

Sinopec has not commented on this news, and Kuwait’s national oil company declined to comment.

At the same time, according to Persian Gulf crude oil traders who had participated in recent price negotiations, the Iranian and Iraqi national oil companies are also providing Asian buyers with better credit and payment terms. For example, price-sensitive buyers, such as India, are allowed to extend payment dates up to a maximum of 90 days, but normally should be paid within 30 days.

The State Organization for Marketing of Oil did not comment on this. An Iranian national oil company executive declined to comment, saying that its trading strategy is confidential information.

Another major oil producer, the United Arab Emirates, has removed the destination clause from its sales contract, which is designed to prevent buyers from reselling crude oil. An Abu Dhabi National Oil Company official who declined to be named confirmed: "We have many customers who have chosen to relax the terms of the contract after the terms of the destination." Under the current market conditions, this flexibility allows buyers to resell crude oil. Sex is quite attractive because, for an Asian oil company, it can choose crude oil that doesn't come from shipping if the demand is weak.

Market participants pointed out that, for the moment, the oil-producing countries in the Middle East are more concerned about how to protect their current share in the Asian market, rather than how to outperform their competitors in pricing.

Judging from the latest price cuts taken by Saudi Arabia, the price cut is the largest since this year. In the near future, Iraq, Iran and Kuwait also cut prices. Iraq has always lowered the official price of Basrah light medium oil and launched a price competition with Saudi Arabia, the largest crude oil exporter in OPEC.

At the Singapore Platts Petroleum Conference held last week, Energy Aspects analyst Amrita Sen pointed out that oil producing countries in the Middle East are facing pressure to maintain their revenues, especially in the “Arab Spring”. This is even more so in the era when the government spent a lot to appease the disgruntled population.

At the same time, competitive pressures from Latin American and African oil-producing countries are also increasing. Both Libya and Angola have already adopted price cuts because these countries have already lost traditional markets such as the United States and Europe and are forced to increase crude oil exports to the Asian market. In the past, Libya rarely exported crude oil to Asia, but since August, China has replaced some Mediterranean countries and become one of Libya’s largest customers. In addition, sources revealed that Libya is also in talks with Indian refiners.

An Angola official said: “Since May, we have already adopted price cuts. Compared with Brent crude, some Angolan crude oils had previously sold for more than US$1/barrel, but now they are more expensive than Brent. Crude oil is 1 to 4 US dollars/barrel."