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Saudi Arabia tightens its grip on Japan, its biggest Asian oil market
July 5, 2017 / 9:44 AM / in 22 days

Saudi Arabia tightens its grip on Japan, its biggest Asian oil market

Steam is emitted from a oil refinery in Sodegaura, Japan February 8, 2017.Issei Kato

SINGAPORE/TOKYO (Reuters) - Saudi Arabia has boosted its market share in Japan, the world's top oil exporter's biggest Asian market, by selling more light crude to the country as a way to offset revenue lost implementing OPEC's production cuts.

Middle East crude sellers consider Japan, the world's fourth-largest oil importer, a premium market since its refiners will pay more to secure supply than other Asian buyers. Saudi Arabia raises revenue by boosting sales of more expensive light crude since it cut its supply of so-called heavy crude to comply with the agreement between the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers to reduce output.

Japan's imports of Saudi crude between January and June reached 1.3 million bpd, 7.7 percent higher than a year ago, making it Japan's biggest supplier, according to trade flows data on Thomson Reuters Eikon.

The increase was mainly in Arab Extra Light as state oil giant Saudi Aramco IPO-ARMO.SE offered extra cargoes on top of contracted volumes to Japanese buyers, two Japanese refining sources said. They declined to be named due to company policies.

Imports of Arab Extra Light and Arab Light were 160,000 barrels per day (bpd) higher through May at 1.03 million bpd, said Virendra Chauhan, Singapore-based analyst at consultancy Energy Aspects.

Saudi Arabia "clearly sees Asia as its backyard and as a centre of growth and long-term source of demand. As such, it does not want to give up too much market share here," he said.

A gas flame is seen in the desert near the Khurais oilfield, about 160 km (99 miles) from Riyadh, June 23, 2008.Ali Jarekji

Saudi Aramco did not respond to an e-mail from Reuters seeking comment.

Japan's spending on oil through May this year surged 73 percent from the same time a year ago to 3.82 trillion yen (26.05 billion pounds) as global oil prices rose LCOc1 and imports climbed, data from the Ministry of Finance shows.

Saudi imports came at the expense of Iran, whose imports dropped 20 percent in the first half of 2017, and Kuwait and the United Arab Emirates, which fell by 8 percent and 5 percent respectively.

Saudi crude exports to its second- and third-largest Asian buyers - China and South Korea - were little changed in the first half of 2017 from a year ago, the trade flow data showed.

Exports to India and Taiwan dropped 3 percent and 13 percent respectively, the data on Eikon showed. Trade sources said this was because Saudi Aramco was unable to supply more heavy crude.

"People are asking for more (heavy crude) but the Saudis can't give because of the OPEC cuts," said a Gulf oil source who requested anonymity because of the sensitivity of the topic.

Reporting by Florence Tan in SINGAPORE and Osamu Tsukimori in TOKYO; Additional reporting by Nidhi Verma in NEW DELHI; Editing by Christian Schmollinger

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