6 Min Read
LAUNCESTON, Australia (Reuters) - If you were looking for evidence of reduced crude oil supply from OPEC and its main ally in cutting output to boost prices, Russia, then stay away from Asia's top importers.
January import data from China, India and Japan do little to show the impact of reduced crude supply, but do suggest that prices have risen in response to move by the producer group and its allies to remove some 1.8 million barrels per day (bpd) from global oil markets.
Top importer China's January data provides a case in point.
Imports rose 27.5 percent from the year-earlier month to 34.03 million tonnes, equivalent to 8.01 million bpd.
That's an impressive increase, believed mainly to be on the back on ongoing additions to strategic reserves and rising demand from smaller, private refiners that are now allowed to import crude.
Saudi Arabia - the main driver behind OPEC's decision in November to cut output - increased exports to China by 18.9 percent to the equivalent of 1.18 million bpd in January from the year earlier month.
This was also up a massive 40 percent from the 841,000 bpd China imported from the kingdom in December.
The increase speaks more of a determined attempt by Saudi Arabia to keep key customers in Asia well supplied, and cut supplies to other buyers in other, less vital parts of the world.
However, there is another factor to consider: Chinese customs data does tell us where each barrel of oil comes from, but it doesn't tell us when that barrel was shipped.
It's possible that the surge of imports from Saudi Arabia in January was partially related to barrels moving from floating or other storage to delivery, as traders responded to the expected tightening of the market and move of the oil futures curve from contango toward backwardation.
Nonetheless, even if some of the barrels arriving are from trade-related storage plays, it's still clear that China isn't feeling its supplies being constrained by the countries committed to cutting output.
Imports from Russia rose 36.5 percent in January from the same month in 2016 to the equivalent of 1.08 million bpd, while those from Angola surged 63.5 percent to 1.16 million bpd.
Other OPEC producers also saw their share of Chinese imports grow by more than overall January imports, with Iraq up 43.2 percent and Venezuela by 80.1 percent.
The losers among major suppliers were Iran, with China's imports dropping by 1.3 percent in January, and the United Arab Emirates (UAE), whose exports to China declined by 15.5 percent.
Turning to India, its imports from Saudi Arabia amounted to 925,700 bpd in January, up 36.1 percent from December and down 1.4 percent from the same month in 2016. [nL4N1FZ3ZP]
India also imported more in January than it did in December from OPEC members Iran (up 1.5 percent), Iraq (up 2.1 percent) and Angola (up 60.2 percent).
However, imports from the UAE were down 8 percent and from Kuwait by 41.4 percent, although that country isn't a major supplier to India.
In Japan, Asia's third-biggest oil importer, purchases from top supplier Saudi Arabia fell to 1.3 million bpd in January from December's 1.43 million, but were still 11.8 percent higher than the same month last year.
Imports from Japan's number two supplier, the UAE, fell from 884,057 bpd in December to 752,973 bpd in January, while imports from Russia rose to 214,498 bpd from December's 194,285.
It's also worth noting that Japan's total January imports were 3.315 million bpd, some 349,000 bpd lower than December's 3.664 million bpd.
Overall, imports from Saudi Arabia in January by Asia's three biggest oil purchasers rose to 3.41 million bpd from 2.947 million in December, a 15.2 percent jump.
The picture that emerges is Asia is largely unaffected by OPEC and its allies' cuts to output - at least for now.
The main impact is being felt through higher prices, with Chinese customs data showing that the cost of a barrel of Saudi oil went up to the equivalent of $53.77 in January from $45.20 in December.
This was a far sharper increase that the overall cost of China's oil, which rose to $52.20 a barrel in January from December's $46.30.
It's pricing that may well end being the major driver of change in Asia's oil markets, with buyers being tempted away from cargoes from the OPEC and allied producers toward those outside of the deal to limit output, such as the United States.
China imported 1.88 million of crude from the United States in January, the equivalent of one Very Large Crude Carrier (VLCC). For the whole of last year, it imported the equivalent of two VLCCs from the United States.
If U.S. oil can compete price-wise with cargoes from the Middle East, it may tempt Chinese refiners to buy more, especially if the OPEC output cuts do drain stored oil and start to crimp available prompt cargoes.
For OPEC and Russia, the question may eventually become deciding whether they can continue to keep Asia well supplied and maintain their relative market shares, while still inflicting enough pain elsewhere to keep oil prices on a rising trend.
Editing by Kenneth Maxwell