Middle East crude flows to Asia are recovering, with Asian refiners gradually shifting their purchasing focus back to traditional supply sources, and alternative demand for US crude weakening accordingly.
On November 13, according to reports, daily earnings for Very Large Crude Carriers (VLCCs) on the US Gulf Coast-to-Asia route fell 61% from their October peak, while the same metric for the Persian Gulf-to-East Asia route dropped only 24%, showing a clear divergence in freight rate trends between the two routes.
Purchasing data also confirms this trend. Asian refiners in Japan, Thailand, and elsewhere are restarting or expanding Middle East crude purchases. Reports previously indicated that US crude volumes ordered by Asian refiners for November delivery plummeted by approximately 50% to 24 million to 26 million barrels.
According to reports citing informed traders, crude flows from the United Arab Emirates, Saudi Arabia, and Qatar have all expanded significantly, including cargoes requiring transit through the Strait of Hormuz. As Middle East producers restore output and cut selling prices, Asia's crude import landscape is gradually returning to the state it was in before the US-Iran conflict.
Middle East Supply Recovery and Producer Price Cuts to Compete for Market Share
In the early stages of the US-Iran conflict that broke out in February this year, tankers passing through the Strait of Hormuz were attacked, crude exports from Persian Gulf producers contracted sharply, and Asian buyers were forced to turn to alternative sources such as the United States.
As the situation stabilizes, Middle East crude supply is gradually recovering. Saudi Arabia reported to OPEC that its October crude production rose to one of its highest monthly levels in recent years.
Meanwhile, major producers are also competing for Asian market share through price cuts. Saudi Arabia recently lowered its official selling price for Asian buyers to a six-year low; the UAE, which exited OPEC in April, also reduced the price premium for its flagship crude grade for December delivery.
Warren Patterson, head of commodities strategy at ING Groep NV, said Asia will find it difficult to break away from its dependence on the Middle East as its largest crude supply source, because there is insufficient additional supply in the global supply-demand balance to support a large-scale shift in purchasing sources.
Asian Buyers Return to Middle East as US Crude Orders Decline
Japanese refiners have already begun increasing Middle East crude purchases. Eneos Holdings and Cosmo Energy Holdings have recently both recorded purchases of UAE crude.
Yutaro Nishi, an analyst at Rakuten Securities Economic Research Institute, said that as long as Japanese refiners can still obtain crude from the Middle East, they are likely to continue purchasing. He noted that although circumstances vary by country, Asia will remain the primary market for Middle East crude.
India's purchasing structure has also shifted. According to Kpler data, crude imports from the Persian Gulf have surpassed those from Russia, once again making the region India's largest source of crude imports.
Corresponding to the rebound in Middle East purchases, demand for US crude exports to Asia has clearly cooled. Kent Britton, CEO of the Port of Corpus Christi, said this week that of the 40 crude tankers departing from the US Gulf Coast last week, not a single one was bound for Asia.
VLCC daily earnings on the US-to-Asia route fell 61% from their October peak, while the Persian Gulf-to-East Asia route dropped only 24%, also reflecting the differing changes in transportation demand between the two routes. Asian refiners increasing Middle East purchases is pushing crude trade flows back toward the pre-conflict landscape.
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