Iran war hits refined fuels harder than crude and importers need to act
SEATTLE (Oil Monster): The loss of as much as 20% of the world's crude oil and refined fuels through the ongoing effective closure of the Strait of Hormuz gathers most of the media attention as the main fallout from the attack on Iran by the U.S. and Israel.
But of more pressing concern is the rapid tightening of refined product markets in Asia, with major importing countries such as Australia and Indonesia potentially facing an emergency situation of lower supplies and massively higher prices.
Australia is Asia's largest importer of refined products, averaging around 900,000 barrels per day (bpd), while Indonesia ranks second with arrivals of around 600,000 bpd, according to data compiled by commodity analysts Kpler.
Diesel makes up the biggest component of Australia's imports and the fuel is vital to keep the country's massive mining operations going, while gasoline takes the largest slice of Indonesia's arrivals.
The problem for these two countries, and other Asian countries relying on fuel imports such as New Zealand, the Philippines and Vietnam, is that the near total closure of the Strait of Hormuz is already leading to changes in the product markets that point to an emerging crisis.
Major refining countries are cutting runs or restricting exports, with an example being China ordering an immediate ban on refined fuel exports from March 11, according to four sources with knowledge of the issue.
China isn't a major supplier of refined fuel to Asia, but it is the country with the largest crude stockpile and the biggest refining capacity, meaning it has the capability to supply more to market if it chose to do so.
However, the authorities have decided to prioritise domestic energy security and not use their estimated 1.2 billion barrels of crude held in commercial and strategic stockpiles.
This is perhaps an understandable perspective, but it is short-term thinking that assumes that somehow fuel-importing nations will be able to meet requirements in coming months.
Chinese refiners are cutting throughput, as are some other plants in countries such as South Korea.
If refinery runs are trimmed and fuel-exporting nations cut shipments to protect domestic energy security, then the risk of fuel shortages in importing nations rises exponentially.
Product prices have surged with Singapore gasoil, the building block for diesel, ending at $143.88 a barrel on March 13, up 57% since the U.S. and Israel attacked Iran on February 28, while jet fuel has leapt 114% to $199.66.
Courtesy: www.reuters.com