Image Source: THE WALL STREET JOURNAL
The oil suppliers from Middle East must compete with Russia to supply oil to Asia. The world’s second largest producer of crude mineral oil is Russia. Its sales to China, South Korea and Japan have increased by 25 percent, therefore increasing the portion of shipments from 7.2 percent in 2013 to 8.7 percent this year according to the data collected by Bloomberg. Meanwhile, the exports from Saudi Arabia have decreased from 26 to 24 percent. The market share of Qatar and Kuwait has also considerably decreased.
Great discounts are being offered by the Gulf producers due to the global crude glut to the Asian buyers for whom it’s beneficial. According to the predictions made by the International Energy Agency Asia will replace U.S. as the biggest consuming region. The European demand has been consistently decreasing along with the demand for the same by U.S. rising sales to Asia is helping to boost the Russian economy and recover from the conflict with Ukraine and collapsing energy prices.
The Russian supply to China, Japan and South Korea has increased from 41 million in 2013 to 51 million. These three countries have together imported 592 million tons. According to Victor Shrum who is a Singapore based vice president of IHS Inc., in a telephonic interview stated that the decision of Russia to supply crude oil to Asia is a win-win situation because the Asian countries want to diversify and the only alternate for Russia is to supply to the Western countries where the demand for this is crumbling, and therefore Asia is the place to be due to its growing demand. India is the fourth largest consumer, but there is no comparable data available.
The supply from Saudi Arabia has decreased from 146 million tons to 142. Whereas Qatar’s market’s share declined from 7.2 percent to 7 percent. The discounts allowed by the Gulf producers to Asia have been thoroughly increasing in the past 15 months. The record of discount offered was by Arab Lights that was $2.30 per barrel in March. The other Middle Eastern suppliers follow the pricing policy of Kuwait. According to the unanimous decision of the Organisation of Petroleum Exporting Countries, they are going to maintain a steady supply of output to reduce the global glut. Two-thirds of the global oil demand will be due to Asia.
While the hold of Saudi Arabia’s exports to the Chinese markets has decreased from 19 percent to 16 percent in 2014, according to an ICIS analyst from Guangzhou it is highly unlikely that it would lose its place amongst the top suppliers. And the exports to Japan which is the third biggest consumer nation has increased from 30 percent to 32 percent. And according to the analyst Sun the Saudi crude supply is not really in any danger because they promise a steady supply and the refining units are configured to meet those demands. And if the price remains stable, Saudi has got nothing to worry about. Asian refiners have limited options regarding the processing plants because they are built to process only certain types of crude. Various other alternatives like Venezuela’s heavy high sulphur cargoes aren’t viable for these units.
One of the ways in which the Middle Eastern producers can defend their share in the market is by increasing the discounts. They have become more aggressive in offering generous discounts. The lowest level was reached by Brent crude. Futures have rebounded from the low level of 37 percent to 47 percent that means the cost per barrel was at a low of $45.19 per barrel. The Futures Contract position also lost $1.93 to $60.60 per barrel on the Futures Europe Exchange in London. The Russian economy is now relying on the oil export because of the annexation of Crimea pushed Russia to the brink of recession along with the collapse in the value against the dollar.
To enable a more efficient supply of crude to Asia, Russia has built a pipeline stretching from the Siberian town of Taishet to Kozmino on the east coast. The shipments of tankers from Kozmino have increased to 2.6 million tons that is a record. The biggest publicly trader oil producer by output, OAO Rosneft has signed a long-term contract with China National Petroleum Corp.
In 2013, it agreed to supply 325 million tons over the span of 25 years thereby strengthening their ties. Rosneft also plans to boost the sales by another 30 percent at least. According to Wu Kang who is a Beijing-based analyst working for FGE, which is an energy consultant, through a telephonic interview said something along the lines that Russia is in the market share competition for sure and that the country is willing to export as much as possible.