Asia’s seaborne imports of crude oil lifted slightly in June but stayed near their lowest in more than a decade as the impact of Iran conflict crimped shipments from the Middle East.
The top importing region is forecast to receive 20.71 million barrels per day (bpd) in June, up fractionally from May’s 20.39 million bpd and nearly 2 million bpd more than the 18.77 million bpd in April, which was the lowest since November 2015, data from commodity analysts Kpler shows.
However, despite the modest recovery in volumes in May and June, Asia’s imports remain at levels well below the 26.79 million bpd average for the three months prior to the February 28 attacks by the United States and Israel on Iran.
The conflict resulted in the effective closure of the Strait of Hormuz, the narrow waterway between Iran and Oman through which about 20% of global crude and refined products moved before the war.
The 60-day ceasefire agreed between the United States and Iran was supposed to lead to the full reopening of the strait, but vessel movements remain well below pre-war levels amid Iranian attacks on some ships.
Crude volumes through the Strait of Hormuz have picked up in recent days, but Kpler estimates only 2.79 million bpd will have exited in June, up from just 881,000 bpd in May but less than a fifth of the 15.58 million bpd average for the three months prior to the start of the conflict.
The unresolved issue is whether crude exports from the Middle East will return to pre-war levels, and if so how long will this take.
PRICES SEE SOLUTION
Pricing in the crude futures market suggests there are no supply issues whatsoever, with Brent contracts ending at $73.15 a barrel on Monday, only slightly higher than the close of $72.48 on February 27, the day before hostilities started.
Prices for refined products in Asia tell a slightly different story, remaining above pre-war levels as refiners process costly crude purchased from outside the Middle East at the height of the conflict.
Singapore gasoil, the building block for diesel, ended at $111.15 a barrel on Monday, up 22% from the close of $91.42 on February 27.
Gasoline finished at $100.42 a barrel on Monday, a premium of 26.6% to the $79.30 on February 27.
It is likely that prices of refined products will ease in coming weeks, as more crude arrives in Asia.
But much will depend on how quickly import volumes return to levels close to those that prevailed before the Iran conflict.
The Strait of Hormuz remains a wild card with Iran seemingly determined to exercise control, in the face of opposition from the administration of President Donald Trump, as well as Gulf crude exporters such as Kuwait, Saudi Arabia and the United Arab Emirates.
This means uncertainty over the safety of the strait is likely to continue, which will restrict tanker movements as owners and insurers fret about potential attacks.
Another wild card is what China does in coming months.
The world’s largest crude importer has blunted the impact of the restricted flows through the Strait of Hormuz by dramatically cutting imports.
China’s seaborne arrivals are forecast by Kpler to be just 5.80 million bpd in June, down from May’s 6.80 million, making these the weakest two months since November 2015.
It means that China’s seaborne imports are half of the 11.39 million bpd average for the three months prior to the conflict.
But with crude prices back to where they were before the war started, it is likely that China’s refiners will once again start buying cargoes, although these will only be delivered from August onwards.
Overall, the level of uncertainty in Asia’s crude market remains elevated.
If China does return to buying the same volumes of crude it was prior to the Iran war, will this tighten the crude market, especially if flows through the Strait of Hormuz fail to rise as much as the futures market appears to be expecting?
What happens to crude supply once the current surge from stockpile releases in countries such as the United States and Japan ends?
So far crude oil markets have shown remarkable resilience and adaptability in the face of the disruption caused by the Iran war. The question is whether this will continue.
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The views expressed here are those of the author, a columnist for Reuters.
(Editing by Clarence Fernandez)