Increasing Oil Surplus Drives Asian Refineries to Export Cargoes to the US -

Oil production is surging in Persian Gulf countries as the Strait of Hormuz reopens, leading Asian refiners, already well-stocked, to export crude as far as California.

Despite Asia being the primary consumer of Middle Eastern crude, refiners are facing challenges as a temporary US-Iran peace deal allows the United Arab Emirates, Kuwait, Qatar, and others to ramp up production, while major importer China remains in a waiting position. As a result, some processors are now arranging shipments towards the west, according to traders who wish to remain anonymous due to restrictions on public commentary.

According to these traders, UAE grades are being marketed to locations as distant as the US West Coast, which hasn’t received crude from the Gulf state since late last year, according to Kpler data. These grades are also being proposed for Hawaii, potentially marking the first shipment of Middle Eastern oil there since 2018, if negotiations are successful.

The oil market is undergoing notable shifts, transitioning from an initial tightening following the conflict towards a potential oversupply. With commercial traffic through Hormuz increasing, Middle Eastern producers are racing to revive dormant production, saturating the market with oil for traditional Asian clients who sought alternatives during the crisis, partly through increased US imports.

“Asian refineries have sufficient supplies until August, and the immediate influx of barrels from the Strait of Hormuz is leading to an oversupply, particularly with China not boosting demand,” stated June Goh, senior oil market analyst at Sparta Commodities SA. This surplus in Asia has made it feasible to market Middle Eastern oil to western locations, she added.

Such atypical transactions may be possible as price differentials have shifted while US inventories have decreased. Prices in the Middle East have plummeted in recent weeks, with many varieties now trading below the regional Dubai benchmark.

Conversely, US stockpiles have diminished, resulting in elevated local prices. Inventories at Cushing, Oklahoma— the delivery hub for West Texas Intermediate futures—have reached their lowest point since 2014. Additionally, US West Coast inventories, including in Hawaii, are at their lowest levels since 2004.

In more peaceful times, Europe and the US imported some Persian Gulf crude, but those volumes declined during the conflict as Asian users outbid others for the remaining supplies from the region.

The trade flow from the US to Asia is also slowing. GS Caltex Corp., a South Korean refiner, did not procure any US crude during the June trading cycle for supplies scheduled next month, as reported by traders. This is attributed to WTI being more expensive than competing grades like Abu Dhabi’s Murban on a delivered basis, they noted.

Total sales of US crude scheduled for July loading to Asia fell between 800,000 to 900,000 barrels per day, according to traders acquainted with the flow. This represents a drop of over 50% from June, bringing volumes to their lowest in about a year, as reported by Kpler data.

The state-owned UAE producer, Abu Dhabi National Oil Co, opted not to comment. Additionally, GS Caltex did not respond to a request for comment.