ASIAN OIL MARKET: RACE OF INFLUENCE

Saudis the world’s biggest exporter plans to increase the amount of storage capacity it uses in Japan. On Okinawa islands, where Aramco has been leasing tanks since 2010, Aramco, is also negotiating for commercial and government crude storage projects in neighboring China to help the country import more Saudi crude.

In addition to investing in Asian oil refineries, storage is part of a logical strategic move for the Saudis to be closer to their largest markets. Oil storage close to buyers can give producers greater logistical flexibility to quickly tap pockets of local demand and comfort a feeling of reliability for suppliers. This move may bolster Saudi Arabia’s protection of its market share amid the raging price war of the last two years that left buyers with more choices of supply.

Iran boosted exports to major oil consumers in Asia during the first half of this year after international sanctions that restricted its supplies were eased in January. A lot of Chinese companies have been traveling to Iran to secure agreement including storage companies and large consumers. Japan’s purchases increased 28 percent, India bought 63 percent more, South Korea’s imports more than doubled while shipments into China gained 2.5 percent, according to a Bloomberg report.

Russia is also aggressively pursuing China using its East Siberia-Pacific Ocean pipeline. In the first half of this year, Saudi Arabia and Russia each had a 14 percent share of China’s oil market, according to China customs data reported by Clipper. This compares with Saudi Arabia’s 15 percent stake versus Russia’s 13 percent the year before. In 2014, Saudi Arabia has a 16 percent share, while Russia had 11 percent. The war of influence is going on and China is enjoying the war in strategically dividing its suppliers.

Well reported was the Saudi Aramco sale to Shandong Chambroad Petrochemicals Ltd., where Aramco used its Japan storage to quickly serve China. This was the first Aramco sale to an independent Chinese refiner, an interesting move for Aramco illustrating the aggressiveness of the Saudis toward the Asian market.

In China this week Saudi Deputy Crown Prince Mohammed bin Salman signed a memorandum of understanding on oil storage. China outlined in 2009 that it plans to build strategic oil reserves equivalent to 100 days of net imports, which supplement commercial inventories held by refiners and storage firms and a lot of large Tanks farm are extremely active all across China.

Japan, which imports almost all of its oil requirements, is leasing storage capacity to two of its biggest crude suppliers while it gets priority for buying the fuel stored in the tanks in the event of an emergency. Saudi Aramco plans to increase its storage on Okinawa by roughly 2 million barrels when the company leases currently about 6 million barrels of capacity.

Japan has also a deal with UAE to store 1 million kiloliters of crude in Kagoshima prefecture in southwestern Japan. Saudi Arabia, Japan’s biggest crude supplier, shipped 65.58 million kiloliters of crude, or 33.5 percent of the total, to the Asian nation in 2015. The United Arab Emirates, the second biggest supplier, accounted for 25.2 percent of Japan’s crude imports.

So clearly Asia is an important strategic place when it comes to market share in the industry and the suppliers war will continue for the foreseeable future…. Saudis will become more aggressive in defending their sphere of influence against Iran & Russia...