Prof. ST Hsieh
Director, US-China Energy Industry Forum
August 13, 2022
The successful shale oil/gas revolution in the US has transformed the global energy market: The US is not only the world’s largest energy producer but US also is a major energy exporter. For example, the US is now the largest LNG exporter in the world.
The global crude oil market is more mature than the LNG market, traditionally OPEC, and recently the OPEC+, controlled global oil supply and drove the global oil prices from the supply side. The demand side was usually forced to shoulder the price burden and the show went on for decades.
The war in Ukraine is about six months old, but it pushed the global energy market to unknown territory. The US led west sanctions against Russian energy dictated or upended the market system, instead of pricing based on supply and demand, now government polices force energy flow directions. These political interventions are unprecedented and injected unimagined uncertainties.
In terms of US crude productions and exports, it is still a basically a market-based system: cost and price determine energy flow. The best US can affect the crude markets are:
- President Biden went around OPEC nations and “begging” for increasing productions.
- Release US SPR at an average rate of one million barrels per day for an extended period of time.
The impacts on increasing US production level turned out to be very limited. Rather, the recently passed US laws favor environments could pour cold water on the fossil energy industry.
The leverage of exporting US crude oil is also constrained by the volume that US can export. Recent data showed US exported a little more than 3 million barrels per day. While OPEC exported 21 million barrel per day. The projections by US EIA showed that the maximum additional production is about one million barrels per day in 2022.
While Russian oil will be fully sanctioned by EU soon, it still exported 3.5 million bpd in the week to July 29th, 2022. Because of EU’s sanctions, Russian oil is being rerouted to Asia with a discount. Another data point is that shipping US crude oil to Europe cost 12 times higher than pipelines. That is a disadvantage for Europeans who desire to import more US crudes to offset banned Russian oil export via pipelines. But the US crude does have a unique marketplace in Asia: Japan. Because Japan joined the west sanctions against Russia after the war in Ukraine and Russia would not do business with Japan anymore.
Another disadvantage of depending on US oil export is that US politicians often float the idea that US should ban energy export because domestic inflations.
As long as the war in Ukraine is not settled, the global energy market will remain very challenged.
Cheaper US crude is luring more Asian buyers and undercutting the Middle East’s oil producers as competition between exporters heats up
Zahra Tayeb Fri, August 12, 2022 at 3:09 AM
- The US is luring Asian buyers with cheap crude as competition with the Middle East heats up.
- Refiners in South Korea and India scooped up about 16 million barrels of US crude this month, according to Bloomberg.
- US crude oil exports hit record highs in July as other countries scramble to replace Russian supply.
Asian buyers are pivoting towards cheap US crude in a sign that demand for Middle Eastern oil is waning, Bloomberg reported.
South Korean and Indian oil refiners have so far snapped up around 16 million barrels of US crude on the physical spot market this month, which will largely be delivered in November, sources with knowledge of the matter told the outlet. This is double of the amount of oil purchased over the same period in July.
West Texas Intermediate oil, the main US export grade, are trading at a premium of less than $8 a barrel over the Dubai benchmark for crude due to arrive in November, including shipping and other costs, according to Bloomberg. The smaller the premium, the more attractive US crude will be to Asian buyers over Middle Eastern crude.
On the futures market, November WTI futures are trading at a premium of just $4 a barrel to Dubai futures and at a discount of nearly $4.50 a barrel to Murban futures – those backed by the UAE’s flagship blend.
The shift in demand away from Middle Eastern to US crude suggests competition between producers in the two regions is heating up as the US, now the world’s largest producer, undercuts the world’s top oil exporting region.
The US has been pumping out more crude as the West scrambles to replace Russian supply after the invasion of Ukraine. In late July, US crude-oil exports hit a record high of 4.55 million barrels a day, according to data from the Energy Information Administration.
At the same time, Saudi Arabia raised its oil prices for Asian buyers for the month of August as a result of high demand and a tighter oil market in the face of economic sanctions.
But that demand appears to be cooling. Saudi Aramco has allocated full contract volumes of crude to at least 4 North Asian buyers for the last two months, suggesting that any squeeze on supply in the market could be easing as demand for its crude has not accelerated beyond what its buyers originally purchased, Reuters reported.
SHANGHAI/HONG KONG/NEW YORK, Aug 12 (Reuters) – Five U.S.-listed Chinese state-owned companies whose audits are under scrutiny by the U.S. securities regulator said on Friday they would voluntarily delist from the New York Stock Exchange.
Oil giant Sinopec (600028.SS) and China Life Insurance (601628.SS), Aluminium Corporation of China (Chalco) (601600.SS), PetroChina (601857.SS) and a separate Sinopec entity, Sinopec Shanghai Petrochemical Co (600688.SS), each said they would apply to delist their American Depository Shares this month. They will keep their listings in Hong Kong and mainland China.