Crude

Market Overview

Higher runrates due to arbs and SPR

Crude

Japan and Korea were the first to increase runrates from the min 60% levels at the start of the crisis to now about 70% by end April.

This is fuelled by arbs cargo arrivals, with Japan in particular taking more than double the typical US crudes volumes and alternatives like Mexico.

Japan and Korea was also able to tap into their crude SPR to improve utilization rates. Japan has released 116 mb of SPR in two batches. Korea has deployed 22.5 mb as an outright release and 20 mb as a crude swap, drawing down about 20% of their reserves.

Singapore has turned to some Canadian and US oil but at the expense of baseoil and bitumen production.

Indian domestic refineries continue buying Oman and Murban but tenders are issued on Brent basis, reflecting poor liquidity on Dubai.

China holds the key

Crude

In April, China’s independent refineries were instructed to run harder whilst the state-owned entities sold crude in the market and tapped on SPR.

China’s onshore crude inventories were heard to be essentially flat even though crude oil imports were lower. Saudi allocations for June loaders is at only 12-14 mb compared to 2025 average of 45 mb.

With US pressuring Iran more with sanctions on China’s independent refineries (notably on Hengli which is a 400 kbd integrated petchem-refinery) and the teapots running at negative margins, it is hard to see how this trend can be sustained.

China would need to come back to the market to procure crude, and we expect crude FOB diffs to increase in May trading.

Securing the right feedstock is still the challenge

Crude

Saudi’s E/W pipeline can only export Arab Light crude and missing Arab Medium, Extra Light and Heavy barrels. Iraq and Kuwait crude production is shut in.

Alternatives are generally lighter, necessitating a higher crude intake to produce the same amount of residue to feed the secondary units.

The fuel oil and diesel yields are likely going to be lower in the coming months with the new diet without the design Middle Eastern crudes.

We may hear of refineries delayed start-up post turnaround as well because typically design crudes are required for this purpose.

Iraqi barrels will be the first to go at big discounts to incentivize offloading the high inventories at onshore tanks in order to bring production back online. However once that is cleared out, Iraqi grades are likely to command a higher premium than other medium sour crude alternatives.