Oil refiners in Asia looking to non-OPEC members for supplier diversity

As members of the Organization of Petroleum Exporting Countries (OPEC) scramble to finalize a deal to cut oil output to boost prices, the cartel’s first production cut since 2008, oil buyers in Asia are looking to non-OPEC members for supplier diversity as they say they don’t want to pay more for fuel.

Buyers in Asia, which alone uses a third of the world’s oil supply, have watched with concern as OPEC suppliers – their biggest – openly discuss propping up prices. With non-OPEC supplies readily available, they say they’ll consider exploring new sources if the cartel’s price is no longer right.

Tanker shipments to Asia from non-OPEC sources like Alaska, Azerbaijan, and the North Sea are growing, according to shipping data in Thomson Reuters Eikon.

Eiichiro Kitahara, Executive Officer at major Japanese refinery Tonen General Sekiyu, said that the current price levels look to be appropriate for both the buyers and producers.

Kitahara said that their company aims to avoid high dependence on certain suppliers and may seek new supply opportunities, though like other executives he cautioned against expectations of any sudden change in supply trends among buyers.

Major importers in Japan, China and South Korea have long-standing relationships with OPEC suppliers, with just its Middle East members providing two-thirds of Asia’s oil needs.

Those ties could loosen, with refiners in countries like Japan, which gets around 90% of its oil from Middle East OPEC-members, keen to diversify sources to cut reliance on any single supplier.

Now challenging the US as the world’s biggest oil importer, China’s efforts to reduce dependence on Middle East supplies have already seen OPEC kingpin Saudi Arabia lose its top supplier rank to its rival Russia. Eikon data shows Middle East producers’ share of China’s supply market fell from 50% in January to 46% in November.

Refiners across Asia remain alive to the prospects of shifting market dynamics and how they could make other suppliers more attractive, even as OPEC seeks a price rise to boost the economies of countries that rely heavily on crude exports.

However, International Energy Agency (IEA) Executive Director Fatih Birol, which represents interests of oil consumers, said in an interview in Tokyo that an OPEC cut designed to raise prices could trigger an increase in output by other producers elsewhere – an increase in supply that could end up pegging prices back.