Asia Explores Crude Supply Diversification Amidst Rising Output from Non-OPEC+ Producers in 2024
The ongoing Russia-Ukraine war has prompted Asian countries to contemplate diversifying their crude oil supply sources, with non-OPEC+ producers expected to boost output in 2024. While the tug-of-war for Middle Eastern crudes persists, Asian buyers are increasingly exploring alternatives from the United States, Brazil, Canada, and Guyana, where production trends are on the rise.
Kang Wu, the global head of oil demand research at S&P Global, highlighted the potential benefits for Asia, stating that the increase in non-OPEC oil production will contribute to the global oil supply, leading to more oil flowing into the region. The International Energy Agency (IEA) reported a record 103.8 million b/d in global oil supplies for 2024, with the US, Brazil, Guyana, and Canada collectively expected to add 1.4 million b/d of new oil production.
However, analysts caution about challenges in refinery economics associated with processing newer crudes. Turbulence in some shipping routes, including the Red Sea crisis, and geopolitical uncertainties at choke points may result in higher costs, including freight, for Asian buyers accessing additional oil supplies. Kang emphasized that not all non-OPEC+ crudes may be suitable for Asia’s existing refinery sophistication and preference for heavy and sour crudes, potentially negatively impacting refining economics in the region.
S&P Global estimates that around 75 million barrels of oil will be rerouted around Africa due to turbulence in the Red Sea, adding $3-$4/b to historical price and inventory relationships. China and India, key Asian buyers, continued their diversification efforts in 2023, with China’s Middle Eastern crude imports falling to 46.3%, and India’s crude imports from the Middle East dropping by 21%.
Refiners in South Korea and Japan view the United States as a crucial supplier outside the OPEC and Middle East circle. The US provides a hedge against volatility, and its crude’s price link to Platts Dated Brent complex acts as a cushion against unforeseen spikes in Dubai market structure and Middle Eastern prices. While South Korea increased its US crude purchases in 2023, Japan, heavily reliant on Middle Eastern suppliers, imported 95.1% of its refinery feedstock from the Persian Gulf in 2023. Industry experts advise maintaining a balanced Middle East vs non-Middle East supply ratio for prudence and preparation for potential disruptions.