SINGAPORE – November crude imports into Asia are expected to be at an all-time high, supported primarily by demand from the region’s biggest consumers – China and South Korea.
Preliminary data from Refinitiv Oil Research, a unit of the London Stock Exchange Group, assessed total crude flows into the region at 28.4 million barrels per day (bpd), up 11 per cent from the previous month.
Crude imports to China, the world’s second-largest economy, were at an 11-month high of 11.72 million bpd, up nearly 12 per cent as compared with October, Refinitiv’s data showed.
Refinitiv’s data on China is typically published ahead of official data releases from Beijing.
South Korea imported 3.33 million bpd, up from the previous month’s 2.53 million bpd.
Mr Yaw Yan Chong, director of oil research at Refinitiv, said one reason for the upswing in imports to China could be the commercial start-up of two greenfield refineries – PetroChina’s 400,000 bpd Guangdong Petrochemical and the 320,000 bpd Shenghong Petrochemical facilities.
He added that the looming uncertainty over supplies and the recent expansion of export quotas added support for the hefty purchases seen by China and South Korea.
“Energy security remains a concern for many countries, not just here in Asia. And with the Russia ban on crude looming, the market has a lot to deal with, and that includes the recent cuts by the Organisation of Petroleum Exporting Countries to production,” said Mr Yaw.
The Group of Seven (G-7) – made up of the world’s largest developed economies, including the United States – the European Union and Australia are slated to implement the ban on seaborne exports of Russian oil on Dec 5, as part of sanctions to punish Moscow for its invasion of Ukraine.
A second ban on petroleum products is due to be rolled out in February 2023.
Despite this, Opec and its alliance of producers, including Russia, announced a two million bpd cut in production. It drew widespread criticism from western governments, with the US calling the surprise decision short-sighted.
“I don’t believe anyone expected Opec+ to make such a deep cut. It was untimely and certainly did nothing to ease a market that is on edge,” said Mr Yaw.
“Fundamentally, this market remains tight and if there are any disruptions to production or on the supply chain, we could see prices catapult back up over US$100, and that will only add to inflationary pressures, which is why you see China stocking up.
“No one knows what 2023 is going to look like from a supply perspective.”
While Saudi Arabia remains the top supplier for Asia, with volumes for November assessed at 5.82 million bpd, according to data from Refinitiv, Russia continues to maintain its strong foothold in China and India.
China imported 1.8 million bpd of crude from Russia, up from purchases in October that were pegged at 1.69 million bpd.
India was assessed to have imported one million bpd of Russian crude, up just over 11 per cent from the previous month, according to Refinitiv data.
Mr Yaw said Reliance Industries, operator of the world’s biggest refining complex in Jamnagar in western India, was the biggest recipient of Russian crude in November, with one million tonnes imported.
India-based private refiner Nayara Energy, which is partly owned by Russian energy giant Rosneft, was the second-largest buyer of crude from the Kremlin, having imported around 855,000 tonnes in November.
Mr Yaw said that the Nayara refinery, which is undergoing maintenance, could potentially be reconfigured such that it can supply European winter specification diesel ahead of the ban on Russian petroleum products in February 2023.
Goldman Sachs has said that global inventories of distillates, which include diesel, are tight.
It said in a commodities research note dated Oct 25: “While we see limited near-term upside as runs ramp up, the outlook for the first quarter of 2023 is increasingly challenging, as the G-7 product embargo is implemented in the depths of the Northern Hemisphere winter.”
Diesel is widely used for heating in the Northern Hemisphere, but supplies have been under severe pressure because of the conflict between Russia and Ukraine.
Mr Yaw said that with liquefied natural gas (LNG) prices at a premium, many developing and emerging market economies, particularly in Asia, will be seeking to use diesel as an alternative to the super-chilled LNG.
“This is what is going to drive up demand for the distillate fuel, and will keep prices elevated.
“Potentially, we expect China to expand its export volumes to meet regional demand, while production from the Middle East that usually gets shipped to Asia will be diverted into Europe to meet demand there,” said Mr Yaw.
He expects China to export record volumes of diesel in November, with preliminary data now suggesting that it could be as high as 18.83 million tonnes.