U.S. oil poses threat to Mideast sellers with Asia trading debut

By Sharon Cho on 8/19/2019

SINGAPORE (Bloomberg) --The rivalry between U.S. 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 Plc has offered a cargo of U.S. 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 U.S. oil to Asia, once considered a one-off arbitrage, has expanded in recent years into more frequent shipments.

While U.S. 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 Organization of Petroleum Exporting Countries and its allies are restricting their output in an effort to prop up prices. South Korean oil imports from the U.S. rose to about 8.5 MMbbl in June, compared with 3 MMbbl 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 $4.55/bbl to Dubai benchmark price, the traders said. The deal was subject to the buyer’s acceptance of a vessel named Phoenix Jamnagar.

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