United States’ exports to Asia begin to stall as Mideast Gulf oil producers hurry to protect their market share amidst the lowest prices in five years. As a result of this aggressive strategy of Gulf countries, Asian customers have suspended imports of light crude oil produced in the United States only four months after they started. The suspension only demonstrates how competitive the environment among oil suppliers has become. Oil prices have declined by more than 40 percent since June.
Last week, Saudi Arabia’s oil minister urged other OPEC members to fight the success of the American oil revolution. Nevertheless, his country did not want to help by decreasing its own crude output so as to keep prices depressed and thus jeopardize profitability of North American producers. According to Tushar Tarun of Singapore-based FGE, “there’s so much oversupply that Middle East crudes are now trading at discounts and it is not economical to bring over crudes from the U.S. anymore”.
In the meantime, American oil is becoming uncompetitive against similar grades from Saudi Arabia, Qatar, or the United Arab Emirates after Gulf countries had started dropping prices at the end of the summer to defend their market share. In Asia, Gulf refiners account for about two thirds of the continent’s imports. In addition to the stall in American exports, freight rates from the United States to Asia have gone up by half, thus effectively prompting the sellers to market their cargoes to Europe instead.
The United States relaxed its 40-year-old ban on crude exports last year thanks to the country’s shale oil boom. This has subsequently opened trade routes to Europe and Asia, which are both keen on buying American lightly processed condensate also known as light oil. The U.S. started exporting to Asia only in August this year but managed to double its exports to the continent to about 600,000 barrels in October.
