The US oil industry is giving Middle Eastern oil producers a run for their money as the latter is already facing collapsing oil prices. The struggle is for light oil which is low in sulfur content and has lower density than other varieties, which when refined and processed, yields higher amount of gasoline and naphtha. The much desired light oil in global market is also finding greater demand in Asia, traditionally dependent on Middle Eastern suppliers. Abundance of light oils extracted from US shale field has found its way in Asian economies, which has weighed heavily on rapidly dwindling crude prices.
The USis exporting high amounts of refined fuel, creating a global glut in the market of naphtha and gasoline. On December 7, OPECreached a unanimous agreement to reduce oil production by 1.2 million barrels per day from January next year for boosting crude prices. Facing tough competition by their American counterparts, the Middle Eastern oil companies are left with no choice but to reduce its light oil prices.
While Abu Dhabi and Saudi Arabia are lowering their light oil prices, American companies have found amplified demand from Asian giant importers of crude such as India and South Korea. A temporary block in import by China in the wake of US-China Trade war has made no difference to the burgeoning crude flows of the North American shale giant. The intense rivalry between American shale companies and Middle Eastern companies started in 2016 and has worsened but the competition is stiffer in lighter oil.
Abu Dhabi’s Murban, and Saudi Arabia’s Arab Extra Light has similar fuel yields but for lower grades the sulfur content is still higher than American crude oil meaning it needs further processing before you have cleaner fuel in hand. US exports of crude oil have increased by 7 % this year. Gasoline exports are likely to increase to 80,000 barrels a day in 2019.
All these factors have led to 18 month low in crude oil prices. In Asia’s largest trading hub, Singapore, refining margins fell to the lowest levels in over last 4 years, reports Oil Analytics. The factors for the downfall include higher exports from China and South Korea and the rise in oil supplies in the Atlantic basin.
US light distillates such as naphtha and gasoline have achieved monthly average of 552,000 which is triple the volume over the last two years. Although gasoline margins are still underperforming, the glut in oil supplies is hampering the refiners to process lighter barrels.