Asia's Oil Buying Spree
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Supply Patterns

Strong demand for oil from Asia has led to a slight strengthening of Middle Eastern OSP differentials. Saudi Arabia regained its place as China’s main supplier of crude oil in December, accounting for nearly 18% of total imports at 1.6 million barrels per day. Russia was the second largest supplier at 16%, followed by Angola.

Crude oil imports by China from the U.S. have also increased, soaring by 88% in 2020.  US exports to China averaged 719,000 barrels per day in December 2020, up from zero in the same month of 2019, according to the EIA. Although U.S. exports to China fell to 269,000 barrels per day in February, the country remains one of the largest importers of U.S. crude. Meanwhile U.S. exports to Asia are understood to have hit a record high in May 2020, with more than 1.6 million barrels per day of crude oil exported to China, South Korea and India during the month.

Price Volatility Returns

Strong demand for crude oil from the Asia-Pacific region contributed to price rises during 2020. OPEC reported a 15% month-on-month increase in its OPEC Reference Basket in December, to stand at $49.17/barrel, its highest level since February 2020 before the economic impact of the COVID-19 pandemic was felt. Despite this jump, the yearly average for 2020 was still the lowest since 2016. The price rally has continued in 2021, with the OPEC Reference Basket rising further to $66.86/barrel by the end of April.

Crude oil futures prices point to the potential for further price increases in 2021, as the rollout of COVID-19 vaccinations across the world is enabling social distancing restrictions to be gradually lifted and normal economic activity to resume. But within this upward trend, there is still likely to be short-term price volatility after OPEC and its partners in the OPEC+ Alliance agreed to set their output levels on a monthly basis, rather than the previous quarterly or even half-yearly one.

Further volatility could also be caused if economic recoveries stutter when stimulus packages end and government support is withdrawn.  This could potentially delay the return to normal economic activity globally, and by extension have a dampening effect on crude oil demand.

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