The global oil glut that crashed the crude prices from $100 highs more than two years ago has not yet cleared, and the most optimistic forecasts currently are that the market could swing into a small deficit toward the end of the first half of this year.
In terms of regional markets, the Asian one - where energy demand growth is expected to drive global oil demand growth for at least a decade or two - has been showing increased crude oil imports over the past three months. Asian buyers now have plenty of choice – OPEC’s output cuts have resulted in a lower premium of the Brent benchmark over the Oman/Dubai grade, which has made shipping crude oil to Asia from as far as North Europe profitable.
OPEC – especially its de facto leader and biggest exporter Saudi Arabia – is protecting its prized market share in the Asian market, with the Saudis lowering the April price for the light crude they sell to Asia.
But it’s the Brent vs. Oman/Dubai benchmarks spreads that have been showing that demand in Asia may have started catching up with supply in the region. And supply to Asia has been plentiful--from the Middle Eastern producers who are continuing to send (almost) full volumes to Asia while cutting exports to other regions to try to comply with the supply-cut deal, from Russia which is battling Saudi Arabia for supremacy on the Chinese market, and from West Africa and North Europe due to the lower Brent premium over Oman/Dubai.
Last week, the Brent premium over the Oman/Dubai benchmark dropped to its lowest level in 18 months, according to Bloomberg Gadfly. On Wednesday last week, Oman/Dubai cost $0.885 more than Brent, a first since 2014. As Bloomberg Gadfly’s David Fickling notes, the spread between those two regional benchmarks – European and Asian—can be used to look into the supply tightness of the oil market in the regions. The Brent price at a premium over Oman/Dubai points to the fact that producers from the Middle East are shipping more oil further east to Asia, with Asian prices down relative to a tighter market in Europe. But the eliminated discount of Oman/Dubai to Brent could point to the assumption that demand in the region may have started to catch up with supply.
The oil imports statistics of China, India and Japan in recent months suggest that they are increasing the pace of their crude imports.
Last month, China’s crude oil imports reached their second-highest level ever, as buys of foreign crude were prompted by strong demand from the independent Chinese refiners, the so-called ‘teapots’. The February imports of 8.286 million bpd, up 3.5 percent annually, were only second to this past December all-time high imports of 8.57 million bpd. China’s January imports were also above the 8-million-bpd mark, at 8.01 million bpd.
Last year, China met 64.4 percent of its crude oil demand with imports because of high production costs at home and favorable international prices resulting from the global glut. This year, China is expected to further raise its share of imports in meeting its crude demand.
India’s oil consumption growth reached a record-level 11 percent in 2016 as a growing urban population with rising income fueled greater use of cars, trucks, and motorbikes.
The Japanese crude oil imports in December reached their highest level since March 2015, and held steady – albeit slightly lower – in January, according to Bloomberg Gadfly.
Asia has been the driver of global oil demand growth, but can Asian demand help draw down the global oversupply?
By Tsvetana Paraskova for Oilprice.com
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