SINGAPORE: An aggressive strategy by Mideast Gulf producers to exploit the lowest oil prices in five years to defend market share is showing signs of bearing fruit as US crude exports to Asia grind to halt.
Asian refineries have suspended imports of condensate, a light crude oil produced from the US shale boom, just four months after they began in favour of cheaper Middle East grades, according to trade and industry sources.
The suspension illustrates how competition between suppliers has heated up following a more than 40 percent decline in oil prices since June.
Last week Ali al-Naimi, the oil minister of Opec kingpin Saudi Arabia, warned his fellow Opec members they must combat the US shale boom. He argued against cutting Opec production so as to keep prices depressed and undermine the profitability of North American producers.
“There’s so much oversupply that Middle East crudes are now trading at discounts and it is not economical to bring over crudes from the U.S. anymore,” said Tushar Tarun Bansal of consultancy FGE in Singapore.
US oil became uncompetitive against similar grades from Qatar, Saudi Arabia and the United Arab Emirates after Gulf producers began dropping prices in August to maintain their market share in an oil market glut.
Middle East crude currently accounts for about two-thirds of Asia’s imports. Adding to pressure on US crude exports to Asia, freight rates from the United States to Asia have risen by 50 percent, forcing sellers to market their cargoes to Europe instead. This is partly due to higher demand for ships in the Middle East and Africa. The US eased a 40-year-old ban on crude exports last year in the wake of its shale oil boom, opening up new trade routes for surplus flows to Asia and Europe this year.
US exports of lightly processed condensate, also known as light oil, started arriving in Asia in August and exports doubled to about 600,000 barrels in October.
Royal Dutch Shell bought the last cargo coming to Asia, due to arrive at its Singapore refinery in December, but as a result of the price shifts no more cargoes are expected to head east for at least the next two months, three traders who specialise in the
market said. Reuters
