Confusion about co-loading of oil cargoes following Qatar's diplomatic isolation may have eased, but Asian buyers are still cautious of signing on the dotted line for cargoes, a move that could trim volumes from the Middle Eastern exporter until the deadlock is broken.
On June 5, Saudi Arabia, joined by the UAE, Bahrain and Egypt, abruptly severed diplomatic and transport ties with Qatar.
The diplomatic crisis threw Asian oil buyers' logistics in complete disarray as confusion emerged on whether buyers lifting Qatari oil would be able to stop at ports in Abu Dhabi to co-load cargoes or bunker for fuel in the regional bunkering hub of Fujairah.
The typical cargo size in the Middle East is 500,000 barrels, which leads to Asian oil buyers co-loading four cargoes from various ports to fill a VLCC before it heads to Asia.
Asian buyers have quickly learned that disruptions to relations between their suppliers can have a serious impact on their loading schedules.
Although Abu Dhabi cleared the air as of June 20 after a couple of weeks of confusion, saying that vessels going to or coming from Qatar can stop at its ports, buyers have become cautious and are even considering shunning Qatari crude and looking for alternatives from elsewhere.
But some Asian buyers remain cautious, on fears the restrictions could be reinstated as happened earlier in the month, as long as the diplomatic crisis between Qatar, the UAE and Saudi Arabia continues. There is no sign for now that the issue will be resolved anytime soon.
"Even [though] the restrictions have been lifted, many regular PG crude buyers [are] not reading too much into the latest update because the uncertainties will persist as long as political and diplomatic ties remain cut," said a trader with a South Korean refiner.
ALTERNATIVE OPTIONS
For many Asian buyers, Qatari volumes could be easily replaced by alternatives, according to market sources.
With no resolution in sight to the diplomatic crisis, demand for non-Middle Eastern crude supply has picked up in recent weeks.
"What's interesting is that many Asian end-users took Kazakhstan's CPC Blend and Algerian Saharan Blend lately," a Southeast Asian crude buyer said.
Thailand's PTT, a common spot buyer of Qatar Land, has started buying alternative light grades. It recently purchased around 1.6 million barrels of Nigeria's Agbami and Libya's Amna crude for delivery over late August to early September, according to market sources.
In addition PTT, which normally buys two or more light sour spot crude cargoes every month, has shown its preference for Abu Dhabi supplies over Qatari grades, picking up just one Qatar Land cargo but buying two Murban crude stems.
The Southeast Asian end-user could have taken three Qatar Land cargoes for loadings in August but the company has opted for diversification with recent jitters in the Persian Gulf, traders said.
Regional traders also noted that demand for short-haul Far East Russian crude cargoes had been rising with many Asian buyers seeking more non-Middle Eastern grades.
MAIN SUPPLIER
But despite the Middle East's diplomatic crisis, Asian market participants and observers do not see the tide completely turning in favor of other suppliers at the cost of Middle Eastern supplies.
For Japan and South Korea, both of which buy more than 80% of their crude oil requirements from the Middle East, a significant decline in the region's export share is unlikely, but it might decrease inflows from Qatar, said Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp.
"The Middle Eastern dependency for oil imports may dip but not significantly because of its supply volume availability, which are also economically viable and the grades are relatively similar," Nogami said.
"But there is a possibility that Qatari term [oil] imports may be reduced at the time of contractual renewals as long as there are no improvements in the current situation," he added.
Similarly Petroleum Association of Japan president Yasushi Kimura told a press conference June 26 that buying from Qatar might get impacted if there are restrictions on loadings.
"Qatari crude imports account for less than 10% of Japan's total crude imports, and that could get diversified volume-wise," Kimura said.
