Why Middle East Oil To Asia Is Trading At A Discount

Bucking the trend from last month, when spot cargoes of Middle Eastern oil traded at multi-year premium highs in Asia due to falling Iranian oil supply, this month spot cargoes are trading at discounts to their official prices, due to increased supply from Iran’s fellow OPEC members in the Middle East and to lower demand from Japan, where some refineries had closed in the wake of natural disasters.

Most of the Middle Eastern grades on spot cargoes for December loadings are trading at discounts this month, Reuters reported on Tuesday, citing industry sources.

Last month, refiners asked for a lot of additional Saudi crude, according to a trader at a North Asian refiner. Saudi Arabia is boosting deliveries of Arab Extra Light to some refiners in north Asia, Reuters’ sources say.

Earlier this month, Saudi Arabia was said to be set to deliver extra 4 million barrels of its oil to India in November, in what could be a Saudi move to replace the loss of Iranian barrels due to the U.S. sanctions on Tehran returning early next month.

Apart from Saudi Arabia, Persian Gulf producers Kuwait and the UAE are also increasing supply and have recently launched new crude grades. The UAE’s Umm Lulu and Kuwait’s Super Light Crude are adding a combined 170,000 bpd of new light oil supply, according to Reuters estimates.

The Asian market is currently well-supplied with light sour crude grades, including Saudi Arab Extra Light, grades from the UAE’s ADNOC, and from Kazakhstan, another trader with a refiner in north Asia told Reuters.

While supply is ample, demand in Japan has faltered over the past two months, after a typhoon swept through the country in September, killing 11 people and forcing some refiners to shut refining units.

As of October 10, Japanese refiners had 20 percent of all refining capacity shut down, due to a combination of scheduled maintenance and unexpected closures because of natural disasters, S&P Global Platts has estimated.

Utilization rates in Japan are not very high and spot purchases are at a minimum, a Japanese oil buyer told Reuters on Tuesday.

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