Middle East to dominate oil supply to Asia, says report

A recent report of the Arab Petroleum Investment Corporation (APICORP) has downplayed the threat from Russian, West African and South American oil for Middle Eastern oil-suppliers, particularly to Asia, a market that has added around one million barrels/day of extra demand in 2015.

The rise in Asian demand has been a big solace for oil producers, as the demand sputtered in other parts of the world.

The report noted that there is no need to be unduly worried about competition from Russian, West African and South American oil.

“Short-term gains for such exporters can be expected as trade patterns continue to evolve and Asia seeks to diversify its supply sources. But this should not be seen as a threat to the Middle East’s exporters or their position in Asia’s ever-growing market.

“Middle Eastern producers such as Saudi Arabia, the UAE and Kuwait sit on some of the world’s largest reserves, operate some of its cheapest wells and have a historical record of being a reliable source of supply, despite many geopolitical shocks.”

APICORP projects confidence that the current cuts in capital expenditure by global competitors will affect supply growth and the continuous thrust of key Middle Eastern exporters in increasing productive capacity will consolidate the region’s role as the main suppliers to Asia.

The GCC and other Middle Eastern oil firms had invested in refineries in Asian countries in earlier years, helping them protect their market share in 2015. “This is particularly the case for Saudi Arabia. In China, the Kingdom is a partner in the 240k b/d Fujian refinery that was configured to process Saudi Arab Light. 

In Japan, Saudi Arabia is a shareholder in the 400k b/d Showa Shell refineries. In South Korea, the Kingdom has a stake in S-Oil’s 670k b/d
refinery.

“All told, it gives Aramco access to Asian refining capacity of roughly 1.3m b/d. This may yet increase: Aramco may buy a stake in a Chinese National Petroleum Corporation (CNPC) refinery along with retail assets.  In India, it has signed preliminary deals covering future possible downstream partnerships,” the report notes.

Attracting Asian investors to make investments in the Middle East and securing long-term deals also helped the region withstand competitive pressures, the report says.