Japanese refiners boost US crude purchases in bid to replace Iranian supply

Japanese Prime Minister Shinzo Abe greets US Defense Secretary Jim Mattis before their meeting at Abe’s official residence on Friday. Abe could fend off demands from the US president to sign a bilateral trade agreement by offering to buy more oil. (AFP)
Updated 29 June 2018
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Japanese refiners boost US crude purchases in bid to replace Iranian supply

  • Increasing purchases by refiners such as JXTG, Japan’s biggest, are likely to please US President Donald Trump, who is pushing Japan to reduce its trade surplus with the US.
  • Nearly 4 million barrels of US crude are due to arrive in Japan, the world’s fourth biggest oil importer, between June and September.

TOKYO: Japanese refiners are ramping up purchases of US crude as it becomes cheaper relative to their usual Middle East supplies and are assessing heavy grades from US shale production as a replacement for supplies from Iran, industry sources said.

Increasing purchases by refiners such as JXTG, Japan’s biggest, are likely to please US President Donald Trump, who is pushing Japan to reduce its trade surplus with the US, which topped $63 billion in 2017.

Nearly 4 million barrels of US crude are due to arrive in Japan, the world’s fourth biggest oil importer, between June and September, according to the sources and Thomson Reuters Eikon shipping data.

They will add to about 2.4 million barrels worth 16.81 billion yen ($153 million) imported in the year through May, according to the latest statistics from the country’s Ministry of Finance.

Japan’s imports of US oil are still tiny compared with total imports of around 3.2 million barrels a day in 2017. Refiners tend to buy only when lower US demand from events such as refinery maintenance drives down US oil prices.

Japan imported an 18-year high of 10.3 million barrels of US crude in 2017, but imports slowed sharply in the first five months of this year as US spot crude prices were stronger than Middle East benchmark Dubai. A steep rise in US output has since widened the price gap between the two benchmarks to more than $5 a barrel, making US oil more attractive.

At least one Japanese refiner has been assessing US Mars crude as a potential replacement for Iranian crude as the company plans to cut Iran loadings after September as US sanctions are reinstated, said a source with knowledge of the matter.

“Because of (sanctions on) Iranian crude, we are looking at US heavy crude” as a substitute, the source said, in particular grades such as Southern Green Canyon and Mars, which are similar to crude from Iran.

JXTG Holdings recently bought 2 million barrels of West Texas Intermediate crude for arrival by September, according to three industry sources.

A JXTG spokesman would not comment on individual deals but said: “US crude is one of the candidates for replacing Iran oil.”

Cosmo Energy Holdings is also lifting 2 million barrels of US oil between April and July, according to shipping data and a source familiar with the matter. Cosmo declined to comment, but said it buys US crude from time to time.

Trump in May withdrew the US from a 2015 agreement that curbed Tehran’s nuclear capabilities and ordered the reimposition of US sanctions against Tehran.
On Tuesday, a senior State Department official said the US wants to stop all exports of Iranian oil from November and is unlikely to offer any exemptions as it did during previous sanctions.

Japan’s Prime Minister Shinzo Abe has also been trying to fend off demands from the US president to sign a bilateral trade agreement by offering to buy more American products.

“Prime Minister Abe will probably try to accommodate President Trump as much as possible on the trade imbalance and buying crude oil is a no-brainer as long as the economics work,” from Tony Nunan, senior oil risk manager at Mitsubishi Corp. in Tokyo.

“To replace Iranian oil it makes sense to go for a sour grade such as Mars and Green Canyon. The problem is these grades are also needed in the US and it is the very light sweet grades that are in excess,” Nunan said.

This meant supplies of the heavier grades would likely only be available when US demand dropped, during refinery maintenance periods for example.
Japan ramped up purchases of Iranian crude after the end of sanctions.


Saudi energy minister recommends driving down oil inventories, says supply plentiful

Updated 19 May 2019
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Saudi energy minister recommends driving down oil inventories, says supply plentiful

  • Oil supplies were sufficient and stockpiles were still rising despite massive output drops from Iran and Venezuela
  • Producer nations discussed how to stabilise a volatile oil market amid rising US-Iran tensions in the Gulf, which threaten to disrupt global supply

JEDDAH: Saudi Arabia’s Energy Minister Khalid Al-Falih said on Sunday he recommended “gently” driving oil inventories down at a time of plentiful global supplies and that OPEC would not make hasty decisions about output ahead of a June meeting.
“Overall, the market is in a delicate situation,” Falih told reporters before a ministerial panel meeting of top OPEC and non-OPEC oil producers, including Saudi Arabia and Russia.
While there is concern about supply disruptions, inventories are rising and the market should see a “comfortable supply situation in the weeks and months to come,” he said.
The Organization of the Petroleum Exporting Countries, of which Saudi Arabia is de facto leader, would have more data at its next meeting in late June to help it reach the best decision on output, Falih said.
“It is critical that we don’t make hasty decisions – given the conflicting data, the complexity involved, and the evolving situation,” he said, describing the outlook as “quite foggy” due in part to a trade dispute between the United States and China.
“But I want to assure you that our group has always done the right thing in the interests of both consumers and producers; and we will continue to do so,” he added.
OPEC, Russia and other non-OPEC producers, an alliance known as OPEC+, agreed to reduce output by 1.2 million barrels per day (bpd) from Jan. 1 for six months, a deal designed to stop inventories building up and weakening prices.
Russian Energy Minister Alexander Novak told reporters that different options were available for the output deal, including a rise in production in the second half of the year.
The energy minister of the United Arab Emirates, Suhail Al-Mazrouei, said oil producers were capable of filling any gap in the oil market and that relaxing supply cuts was not “the right decision.”
Mazrouei said the UAE did not want to see a rise in inventories that could lead to a price collapse and that OPEC would act wisely to maintain sustainable market balance.
“As UAE we see that the job is not done yet, there is still a period of time to look at the supply and demand and we don’t see any need to alter the agreement in the meantime,” he said.
US crude inventories rose unexpectedly last week to their highest since September 2017, while gasoline stockpiles decreased more than forecast, data from the government’s Energy Information Administration showed on Wednesday.
DELICATE BALANCE
Saudi Arabia sees no need to boost production quickly now, with oil at around $70 a barrel, as it fears a price crash and a build-up in inventories, OPEC sources said, adding that Russia wants to increase supply after June.
The United States, not a member of OPEC+ but a close ally of Riyadh, wants the group to boost output to bring oil prices down.
Falih has to find a delicate balance between keeping the oil market well supplied and prices high enough for Riyadh’s budget needs, while pleasing Moscow to ensure Russia remains in the OPEC+ pact, and being responsive to the concerns of the United States and the rest of OPEC+, the sources said earlier.
Sunday’s meeting of the ministerial panel, known as the JMMC, comes amid concerns of a tight market. Iran’s oil exports are likely to drop further in May and shipments from Venezuela could fall again in coming weeks due to US sanctions.
Oil contamination also forced Russia to halt flows along the Druzhba pipeline — a key conduit for crude into Eastern Europe and Germany — in April. The suspension, as yet of unclear duration, left refiners scrambling to find supplies.
Russia’s Novak told reporters that oil supplies to Poland via the pipeline would start on Monday.
OPEC’s agreed share of the cuts is 800,000 bpd, but its actual reduction is far larger due to the production losses in Iran and Venezuela. Both are under US sanctions and exempt from the voluntary reductions under the OPEC-led deal.
REGIONAL TENSIONS
Oil prices edged lower on Friday due to demand fears amid a standoff in Sino-US trade talks, but both benchmarks ended the week higher on rising concerns over disruptions in Middle East shipments due to US-Iran political tensions.
Tensions between Saudi Arabia and Iran are running high after last week’s attacks on two Saudi oil tankers off the UAE coast and another on Saudi oil facilities inside the Kingdom.
Riyadh accused Tehran of ordering the drone strikes on oil pumping stations, for which Yemen’s Iran-aligned Houthi militia claimed responsibility. 
Saudi Arabia’s minister of state for foreign affairs said on Sunday that the Kingdom wants to avert war in the region but stands ready to respond with “all strength” following the attacks.
“Although it has not affected our supplies, such acts of terrorism are deplorable,” Falih said. “They threaten uninterrupted supplies of energy to the world and put a global economy that is already facing headwinds at further risk.”
The attacks come as the United States and Iran spar over Washington’s tightening of sanctions aimed at cutting Iranian oil exports to zero, and an increased US military presence in the Gulf over perceived Iranian threats to US interests.