Oil rises after Saudi Arabia suspends shipments through Red Sea lane following attack

An oil tanker is being loaded at Saudi Aramco's Ras Tanura oil refinery and oil terminal in Saudi Arabia May 21, 2018. (REUTERS)
Updated 26 July 2018
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Oil rises after Saudi Arabia suspends shipments through Red Sea lane following attack

  • An estimated 4.8 million barrels per day of crude oil and refined petroleum products flowed through this waterway in 2016 toward Europe, the United States and Asia
  • US West Texas Intermediate crude futures were up 22 cents at $69.52 a barrel, after climbing more than 1 percent in the previous session

TOKYO: Brent crude led oil prices higher, extending gains into a third day after Saudi Arabia suspended crude shipments through a strategic Red Sea shipping lane and as data showed US inventories fell to a 3-1/2 year low.
Brent crude futures had risen 66 cents, or 0.9 percent, to $74.59 a barrel by 0019 GMT, after gaining 0.7 percent on Wednesday.
US West Texas Intermediate crude futures were up 22 cents at $69.52 a barrel, after climbing more than 1 percent in the previous session.
Saudi Arabia, the world’s biggest oil exporter, said on Thursday that it was “temporarily halting” all oil shipments through the strategic Red Sea shipping lane of Bab Al-Mandeb after an attack on two big oil tankers by Yemen’s Iran-aligned Houthi movement.
Saudi Energy Minister Khalid Al-Falih said in a statement that the Houthis had attacked two Saudi Very Large Crude Carriers (VLCCs) in the Red Sea on Wednesday morning, one of which sustained minimal damage.
“Saudi Arabia is temporarily halting all oil shipments through Bab Al-Mandeb Strait immediately until the situation becomes clearer and the maritime transit through Bab Al-Mandeb is safe,” the minister said.
Most exports from the Gulf that transit the Suez Canal and the SUMED Pipeline also pass through Bab Al-Mandeb strait.
An estimated 4.8 million barrels per day of crude oil and refined petroleum products flowed through this waterway in 2016 toward Europe, the United States and Asia, according to the US Energy Information Administration.
The Bab Al-Mandeb strait, where the Red Sea meets the Gulf of Aden in the Arabian Sea, is only 20 km (12 miles) wide, making hundreds of ships potentially an easy target.
Prices were also supported by official data showing US crude oil inventories last week tumbled more than expected to their lowest level since 2015 as exports jumped and stocks at the Cushing hub dropped.
Crude inventories fell 6.1 million barrels in the week to July 20, compared with analyst expectations for a decrease of 2.3 million barrels, the EIA said on Wednesday.
At 404.9 million barrels, inventories, not including the nation’s emergency petroleum reserve, were at their lowest level since February 2015.


Asia’s refining profits slump as Mideast exports surge

Updated 23 February 2019
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Asia’s refining profits slump as Mideast exports surge

  • Since 2006, the Asia-Pacific has been the world’s biggest oil-consuming region, led by industrial users South Korea and Japan along with rising powerhouses China and India
  • However, overbuilding of refineries and sluggish demand growth have caused a jump in fuel exports from these demand hubs

SINGAPORE: Asia’s biggest oil consumers are flooding the region with fuel as refining output is exceeding consumption amid a slowdown in demand growth, pressuring industry profits.
Since 2006, the Asia-Pacific has been the world’s biggest oil-consuming region, led by industrial users South Korea and Japan along with rising powerhouses China and India.
Yet overbuilding of refineries and sluggish demand growth have caused a jump in fuel exports from these demand hubs.
Compounding the supply overhang, fuel exports from the Middle East, which BP data shows added more than 1 million barrels per day (bpd) of refining capacity from 2013 to 2017, have doubled since 2014 to around 55 million tons, according to Refinitiv.
Car sales in China, the world’s second-biggest oil user, fell for the first time on record last year, and early 2019 sales also remain weak, suggesting a slowdown in gasoline demand.
For diesel, China National Petroleum Corp. in January said that it expected demand to fall by 1.1 percent in 2019. That would be China’s first annual demand decline for a major fuel since its industrial ascent started in 1990.
The surge in fuel exports combined with a 25 percent jump in crude oil prices so far this year has collapsed Singapore refinery margins, the Asian benchmark, from more than $11 per barrel in mid-2017 to just over $2.
Combine the slumping margins with labor costs and taxes and many Asian refineries now struggle to make money.
The squeezed margins have pummelled the stocks of most major Asian petroleum companies, such as Japan’s refiners JXTG Holdings Inc. or Idemitsu Kosan, South Korea’s top oil processor SK Innovation, Asia’s top oil refiner China Petroleum & Chemical Corp. and Indian Oil Corp., with some companies dropping by about 40 percent over the past year. Jeff Brown, president of energy consultancy FGE, said the surge in exports and resulting oversupply were a “big problem” for the industry.
“The pressure on refinery margins is a case of death by a thousand cuts ... Refinery upgrades throughout the region are bumping up against softening demand growth,” he said.
The profit slump follows a surge in fuel exports from China, India, Japan, South Korea and Taiwan. Refinitiv shipping data shows fuel exports from those countries have risen threefold since 2014, to a record of around 15 million tons in January.
The biggest jump in exports has come from China, where refiners are selling off record amounts of excess fuel into Asia.
“There is a risk for Asian market turmoil if (China’s fuel) export capacity remains at the current level or grows further,” said Noriaki Sakai, chief executive officer at Idemitsu Kosan during a news conference last week.
But Japanese and South Korean fuel exports have also risen as demand at home falls amid mature industry and a shrinking population. Japan’s 2019 oil demand will drop by 0.1 percent from 2018, while South Korea’s will remain flat, according to forecasts from Energy Aspects.
In Japan, oil imports have been falling steadily for years, yet its refiners produce more fuel than its industry can absorb. The situation is similar in South Korea, the world’s fifth-biggest refiner by capacity, according to data from BP.
Cho Sang-bum, an official at the Korea Petroleum Association, which represents South Korean refiners, said the surging exports had “triggered a gasoline glut.”
That glut caused negative gasoline margins in January.