BAKU, Azerbaijan, April 14. The demand of Asian refineries for Middle East medium sour crudes may have decreased amid the delivery of over 3 mb/d of Russian crude in the region, Trend reports via the International Energy Agency (IEA).
IEA notes in its latest report that due to the embargo on
Russian seaborne and pipeline imports, refineries had to
shift to predominantly Atlantic Basin producers of generally
lighter and/or sweeter crudes.
“There are several reasons that can explain the asymmetric response. First is the economic incentive to process these crudes. Refineries in Asia, e.g., India, have reportedly benefited from substantial price discounts to process REBCO cargoes. No such incentive exists for European refineries to process Middle Eastern crude. Conversely, Middle East crude differentials for Europe have, in recent months, strengthened more than Asian differentials. Furthermore, logistical constraints may limit the flexibility of European refineries to access VLCC’s of Middle Eastern crude,” reads the report.
Meanwhile, IEA analysts believe that capacity constraints on handling higher sulphur crude qualities may have also curtailed demand, especially given the higher natural gas prices.
The agency says US crude exports have reached record highs in recent months, with 1Q23 flows of 3.89 mb/d some 1.1 mb/d higher than 2021. Over the same period, a 650 kb/d increase in US volumes destined for Europe have dominated increased flows to Asia and China.
“The prospects for the trend towards lower European Middle East crude imports are likely strengthened by recent moves by OPEC+ to restrict supplies, especially given the assurances reportedly received by Asian refineries for no change to their contractual volumes for May loadings,” the report says.
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