Moscow
\nWestern sanctions on Russian and Iranian oil have channelled cheap fuel to Asia and in the process eroded a decades-long trend whereby the continent has paid more for energy than Europe, according to traders, analysts and Refinitiv Eikon data.
\nAnalysts and government officials from consumer countries use the term Asian premium to refer to the higher prices Asian importers have paid for oil sold by big exporters, such as members of the Organization of the Petroleum Exporting Countries.
\nFor Asia, a weakened premium amounts to an economic stimulus, highlighting another unintended consequence of the Western sanctions on oil and gas exporter Moscow, which also led to a surge in the amount Europeans have paid for natural gas.
\n\u201cIt\u2019s safe to say that some major consumers in Asia, most notably India and China, are the major winners of the sanctions,\u201d Ole Hansen, head of the commodity strategy at Saxo Bank, said.
\nWestern Sanctions have led Russia to sell more than twice as much crude to Asia in the year to January, according to Kepler data. Iran, under US sanctions, has boosted exports to the highest in three years on some estimates, with China as the biggest buyer.
\nRussia\u2019s flagship export blend Urals, which before the Ukraine invasion was sold in Europe at a few dollars a barrel below the value of benchmark dated Brent, is being sold in Asia at a discount of minus $24, according to Refinitiv Eikon data. Some industry sources, asking not to be named, say the discount is narrower at $10-$15 per barrel.
\nEven at a discount of around $15 per barrel, a refinery in India processing 200,000 barrels per day would save $3 million a day on its crude purchases compared to a European rival. On an annual basis, the saving would exceed $1 billion.
\nHardeep Singh Puri, India\u2019s oil minister, said in early February the country will keep buying from Russia if prices \u201ccontinue to be good\u201d.
\nPrice-takers and makers
\nThe Asian premium dates back to when producer countries began issuing market prices for their crude in the 1980s, and they could be higher for buyers in Asia, who were more dependent on imports, making them price-takers.
\nAsian buyers have made previous attempts to erode the premium, investing in refining capacity to boost their demand and improve their negotiating power.
\nSaudi Arabia and other leading exporters have reflected the current shifts in significantly lower official selling prices (OSPs) expressed as differentials to regional benchmarks.
\nIn the three months to February, Saudi Arabia reduced prices for its flagship Arab Light for Asian buyers – although it has increased the prices for April- and March-loading crude.
\nEven so, since November, Saudi Arabia has lowered the differential for Arab Light sold in Asia by $3.35 a barrel. The differential for sales to Europe basis Ras Tanura has been increased over the same period by 10 cents a barrel.
\nOther big OPEC exporters Iraq and Kuwait have also reduced their OSPs to Asia since November. Iraq, the only one of the two which also issues prices for Europe, has cut the differentials for Basrah Medium and Heavy to Asia and increased them to Europe.
\n\u201cIran and now Russia increasingly compete on price and the other Middle East producers must adjust their prices accordingly – the result being relatively higher selling prices to Europe,\u201d Saxo Bank\u2019s Hansen said.
\nEurope loses supply source
\nIndia was among those to have complained about the Asian premium they paid to the big exporters.
\n\u201cThe Asians used to have less options than the rest of the world as their pricing needed to attract long-haul exports,\u201d said Jorge Montepeque, who during decades working at S&P Global Platts, developed the dated Brent pricing benchmark. \u201cSo by definition the Asians had to pay up, while Europe and America had indigenous supplies.\u201d
\nNow, with Europe losing Russian crude as a source of supply, the continent needs to draw oil from further afield and \u201cin theory, the Middle East pricing becomes worse for the Europeans,\u201d he said.
\nThe outright price of Arab Light crude, according to an approximation based on Refinitiv data, in Europe moved closer to parity and sometimes exceeded that for Asia in 2023.
\nIn 2021 and early 2022, the price in Asia was mostly at a premium, as shown by the chart below.
\n\u2018No free market\u2019
\nNeil Atkinson, an independent analyst and former senior International Energy Agency official, said the drop in Russia\u2019s Western shipments and its discounted Indian sales were making the Asian premium redundant.
\n\u201cThese normal sorts of patterns of Asian premium or discount don\u2019t really apply,\u201d he said. \u201cThe circumstances are so extraordinary. We don\u2019t have essentially the free market that we would have in normal times.\u201d
\nIn another example of firmer European crude markets, Norwegian Johan Sverdrup crude on February 16 was offered at a premium to dated Brent, up from a $5.15 discount in late November. It is unclear whether it found a buyer.
\nSverdrup, from Europe\u2019s largest-producing oilfield, made its market debut in 2020. Initially, most shipments went to Asia.
\nAfter the imposition of sanctions on Russia following its invasion of Ukraine began in February last year, most of the shipments of Sverdrup remain in Europe and have replaced the Russian Urals for many refiners.
\nNot all see Europe paying elevated prices for the longer term as other suppliers, from which Asia is buying less fill the gap – and an end to the Ukraine war could restore the flow of Russian crude.
\n\u201cOnce the war is over, I believe some normality will return and eventually sanctions will be lifted allowing Russia to compete on equal terms for customers,\u201d Saxo Bank\u2019s Hansen said.<\/p>\n","protected":false},"excerpt":{"rendered":"
Moscow Western sanctions on Russian and Iranian oil have channelled cheap fuel to Asia and in the process eroded a decades-long trend whereby the continent has paid more for energy than Europe, according to traders, analysts and Refinitiv Eikon data. Analysts and government officials from consumer countries use the term Asian premium to refer to […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-319589","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-business"},"yoast_head":"\n