US oil a threat to Mideast sellers in Asia market

SINGAPORE: The rivalry between US and Middle Eastern oil producers has jumped up a notch as American crude makes its way right to the heart of Asia, the world’s most-prized energy market.

Royal Dutch Shell has offered a cargo of US West Texas Intermediate Midland crude that’s priced off the Dubai benchmark in its debut during Asian hours on S&P Global Platts’ widely-referenced trading platform, according to two traders and data compiled by Bloomberg.

Offering the shipment – scheduled to be delivered to Singapore, or Linggi or Nipah in Malaysia – against the Middle East’s oil benchmark brings it into direct competition with Gulf grades that’s produced in Saudi Arabia, Abu Dhabi and Qatar.

The flow of US oil to Asia, once considered a one-off arbitrage, has expanded in recent years into more frequent shipments.

While US shipments of grades such as WTI Midland and Eagleford are typically priced off the American benchmark WTI, Shell’s offer makes it easier for buyers to compare it against similar-quality oil that refiners across South Korea, Japan and China typically take.

The crude can be transferred to other vessels in the Malacca Strait near Singapore, making the logistics less complicated for buyers across Asia.

American exports have eroded the dominance of Middle Eastern crude in Asia, at a time when the Organisation of Petroleum Exporting Countries and its allies are restricting their output in an effort to prop up prices.

South Korean oil imports from the US rose to about 8.5 million barrels in June, compared with 3 million barrels a year earlier.

American shipments to Asia are likely to expand further due the start up of two Permian pipelines this year.

The offer by Shell was made for a WTI Midland cargo for delivery on Oct 15-25 at a premium of US$4.55 a barrel to Dubai benchmark price, the traders said.

The deal was subject to the buyer’s acceptance of a vessel named Phoenix Jamnagar.