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.


Lloyd’s of London profits quadruple on investment gains

Updated 58 min 31 sec ago

Lloyd’s of London profits quadruple on investment gains

  • Specialist insurer reports first-half pre-tax profit of $2.87 billion

LONDON: The 330-year old specialist insurance market Lloyd's of London reported a first-half pre-tax profit of 2.3 billion pounds ($2.87 billion) on Thursday, up nearly fourfold on investment gains and a cutback in underperforming business.
Lloyd's, which covers commercial risks from oil risks to footballers' legs, suffered steep losses in 2017 and 2018 due to natural catastrophes such as hurricanes, typhoons and wildfires.
Lloyd's last year told its 99 member syndicates to ditch the worst performing 10% of their businesses.
"It is encouraging that the Lloyd's market is showing increased discipline in 2019," Chief Executive John Neal said in a statement.
"We need to make some brave choices on how to meet the expectations of our customers and all our stakeholders in the future."
The market has proposed its members move to electronic exchanges next year, as it responds to competition from cheaper rivals.
Further details of the strategic changes will be released on Sept 30.
Net investment income rose to 2.3 billion pounds from 0.2 billion a year earlier, helped by strong equity returns.
Gross written premiums rose 1.7% to 19.7 billion pounds but the company's combined ratio, a measure of underwriting performance in which a level below 100% indicates a profit, weakened to 98.8% from 95.5%.
The results compare with a profit of 0.6 billion pounds a year ago.
Premium rates rose by an average of 3.9%, Lloyd's said.
Lloyd's in May asked the Banking Standards Board to conduct a survey of the insurance market's 45,000 participants on issues such as honesty and respect to help to improve its working environment, following allegations of sexual harassment at member firms.
The survey will be published on Sept 24, Neal said on Thursday.