Oil & Gas

Asian refiners are decreasing their intake of crude oil from the Middle East, opting instead for supplies from the United States and Brazil. This shift is driven by shrinking refining margins and rising Saudi oil prices, even as global benchmarks remain relatively stable. Despite this change, Saudi Arabia continues to be the top supplier to Asia, significantly ahead of both the United States and Brazil. The extent to which this diversification will continue remains uncertain, especially considering the availability of cheaper Russian crude.

 Asian imports of Saudi Arabian crude fell to 4.88 million barrels per day last month, down from 5.07 million barrels per day in March and 5.52 million barrels per day in February, based on LSEG data. This decline is largely due to repeated hikes in Saudi oil prices and weaker fuel demand, which have squeezed refining margins for Asian processors, prompting them to seek more affordable alternatives. Saudi Arabia has increased its official selling prices for oil for three consecutive months since March, with the latest hike pushing the price of its flagship Arab Light to a premium of $2.90 over the Oman/Dubai benchmark.

While oil from the Americas is not the top choice for Asian refiners due to longer transport distances that can negate the price advantage, the rise in imports of U.S. and Brazilian crude indicates that the switch may be worthwhile for some refiners under current conditions. The diversification might accelerate as OPEC+ is expected to maintain its production cut policy at its next meeting on June 1, likely keeping Saudi crude expensive compared to alternatives from Russia, which is already a major supplier to China and India.

Looking ahead, demand will play a crucial role in shaping refining margins. Concerns about demand strength in Asia, particularly in China, persist, with crude oil intake dropping from the previous month. Asian oil imports fell by 440,000 barrels per day in April compared to March, although the four-month daily average was higher by 300,000 barrels per day. Despite this, Rystad Energy expects growth to pick up later in the year, especially in China, where a new refinery and higher fuel export quotas could boost production. However, it seems likely that less of this crude will come from the Middle East and more from Brazil and the U.S., at least for now.