Rivals of OPEC seeking to reach its most-prized oil customers are finding that the long way around is better than any shortcut to success.
As the group seeks to implement a bargain to restriction output, the glut that was exacerbated by its prior strategy of maintaining taps open has spawned a market structure thats benefiting competitors in marketings to Asia. Cargoes from Europes North Sea will reach South Korea in coming months, while U.S. Eagle Ford shale petroleum as well as Mexican petroleum arrived at Yeosu port in November. Japanese and Thai refiners have bought West Texas Intermediate from BP Plc.
Shipments to Asia from locatings farther than the Middle East are turning more attractive because of a deepening marketplace structure known as contango, where near-term supplies are cheaper than those for future months. Sellers benefit from this because the value of a cargo rises as it induces the longer journey to its destination. For purchasers, abundant output across the Atlantic Basin has induced North American and European petroleum cheaper relative to petroleum from OPEC nations such as the U.A.E and Qatar.
The wider contango has given OPECs competitors a shot at loading up a vessel and sending petroleum from all corners of the globe to Asia, even if it sails for up to two months, told Nevyn Nah, a Singapore-based analyst at industry consultant Energy Aspects Ltd. OPECs fight for market share amid rebounding output from members such as Nigeria and Libya, as well as increased production from places like Russia and former Soviet Union regions, has exacerbated the market oversupply.
The premium of later furnishes of Brent, the benchmark for more than half the worlds oil, over near-term cargoes is currently at about$ 5 a barrel versus a contango of$ 2 at the end of April. Thats in contrast to more than two years earlier, when later shipments were at a discount, or backwardation, of more than $7. Crude was then trading at more than $100 a barrel before a global glut dragged down costs by more than 50 percent.
Two million barrels of petroleum on a Very Large Crude Carrier will take about 55 days to traverse the 15,000 nautical mile from the U.S. Gulf Coast across the Atlantic to South Korea, a month more than supplies from the Countries of the middle east. The value of crude can rise by as much as a dollar per barrel during the time difference because of the contango, data compiled by Bloomberg show. That would also assist compensate for higher shipping costs from the longer voyage.
The value of Brent crude loading in three months is about$ 1 per barrel higher versus shipments for two months ahead. The expense to time-charter a vessel for 30 days is lower at 80 to 85 pennies per barrel, according to Bloomberg calculations based on data regarding ship broker Howe Robinson Partners.
Oil is trading more than 50 percentage below its 2014 highs, amid supposition over whether the Organization of Petroleum Exporting Countries will be able to implement a plan to cut output and stabilize markets reeling from a glut. A decision is expected next week after a Vienna meeting between ministers from group nations including biggest member Saudi Arabia as well as non-OPEC producers such as Russia.
OPECs potential production cut could tighten the market in Asia. And, if you cant get enough medium and heavy sour petroleum, then the best would be to look for alternatives in the Atlantic Basin, told Ehsan Ul-Haq, an analyst at industry consultant KBC Energy Economics. If the Saudi-led plan to curb supplyings goes through, the Middle east Dubai oil benchmark could turn costlier relative to Brent, which in turn facilitates the flow of Atlantic Basin petroleum to Asia, he said.
Additionally, vessels that bring oil to the U.S. Gulf Coast from the Countries of the middle east can in turn to contribute to carry back North American and Latin American crude, or a combination of both, to Asia. The supertanker Izki arrived at South Koreas Yeosu port earlier this month with U.S. Eagle Ford crude co-loaded with Mexicos Maya and Isthmus oil grades. The shipment was for refiner GS Caltex Corp ., which has joined other Asian processors in buying supplying from the U.S. mainland after a 40 -year ban on American petroleum exports was overturned.
Buyers in Asia-Pacific also benefit from this strategy because they can receive a blend of heavy petroleums from Latin America and lighter assortments from the U.S. in a single shipment. The region will use 32.88 million barrels a day of petroleum this year, accounting for more than a third of global intake, according to data from the International Energy Agency. Daily demand is forecast to expand to 33.7 million barrels in 2017.
There has traditionally been a regular flow of vessels moving oil from the Arabian Gulf to the U.S ., as producers such as Saudi Arabia and Kuwait have word contracts to render refineries along the U.S. Gulf coast, said Den Syahril, a Singapore-based analyst at industry consultant FGE. This makes a ready pond of vessels available when exporting U.S crude either on its own or along with Latin American grades to Asia, while serving as a viable back-haul option for ship-owners.
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