Asia’s crude oil imports from the U.S. further increased in 2023 despite growing volumes of Russian crude being exported to countries like India and China since the outbreak of the Russia-Ukraine war.
Russia’s invasion of Ukraine, and consequently the westerns countries’ sanctions, have led to unprecedented price spikes and volatilities in the natural gas markets. Europe no longer saw Russia pipeline gas as top option and instead turned to global LNG market to compete with Asia for alternative gas supply.
Geopolitical events have continued to have a huge impact to the crude oil market. The demand center for Russian seaborne crude has shifted further east with India and China picking up greater volumes of Russian Urals following steep price cuts.
China has long been the largest consumer of Russian oil in Asia. Like Europe, China has access to Russian oil through the pipeline. China has increased purchases of Russian seaborne crude since the invasion. As for India, Russia was not originally a main crude oil supplier for the country. However, it is reported that Russia is now making 20% of India’s market share, after India started bringing in large amount of Russian cargoes.1
Amid this change in oil trade flow and increasing competition for Asia market share, U.S. crude exports into the region continues to grow.
An expanded role for WTI Crude Oil futures?
With almost half of the U.S. crude exports arriving in Asia, the need for managing U.S.-based, WTI-linked crude oil price risk is also on the rise from within the region.2 This provides an opportunity for local market participants to further adopt U.S. benchmark referencing. In fact, as U.S. crude exports continue to be shipped to Asia, the liquidity in CME WTI Crude Oil futures during Asian hours has also been growing. Before the lifting of the export ban, Asia hours volume represents slightly less than 10% of total business.3 That share has improved to average close to 20% in recent years. The increased volume in Asia hours is a result of rising interest from the time zone, and it in turn enables firms in the region to manage price risks more efficiently.
CME WTI futures average daily volume (ADV) during Asian hours as percent of total market
The U.S. as a crude export powerhouse
The shale revolution has made the U.S. the world’s largest crude oil producer, and the lifting of exports ban in 2016 transformed the country into one of the major suppliers to the global market. Since the lifting of the ban, U.S. crude exports grew from less than 500 thousand barrels per day to more than four million barrels per day in the first five months of 2023, according to data by Energy Information Administration (EIA).
A substantial amount of U.S crude is consumed by the largest economies in Asia including South Korea, China, India, Singapore, and Taiwan. Therefore, U.S. crude oil shipped to Asia has grown significantly from nearly zero in 2016 to now range between 40% to 50% of total exports.
Chart 1. U.S. exports of crude oil into Asia-Pacific
During 2022, as more Russian crude going into China and India, both markets saw a reduction in U.S. crude intake. With that being the case, the two countries remained the top U.S. crude importers among Asian nations. At the same time, U.S. exported more oil to other major economies in the region, including South Korea, Japan, Taiwan, and Singapore. In the case of Singapore, imports from the U.S. more than doubled in 2022 to average 314 thousand barrels per day, making the nation the third largest U.S. crude oil buyer in Asia. Total U.S. exports into the region also set a record annual high of 1.55 million barrels per day in the year, indicating the strengthening role of U.S. in Asia’s crude market.4
Chart 2. Top Asian consumers of U.S. crude oil
Increasing flow from the U.S. provides more WTI-linked pricing opportunities
Entering 2023, the U.S. crude production maintained at a high level at above 12.5 million barrels per day and exports at four million barrels per day mark.5 Boosted by the large size of purchases from China, U.S. crude exports into Asia are averaging an all-time high of 1.7 million barrels per day so far in 2023.
The U.S. crude oil production is projected to further grow in the next couple of years, and its exports are expected to remain an important supply source to European and Asian consumers. The relevance of WTI as a global benchmark will only increase and its pricing is already being used to set the marginal price in the Atlantic basin. Asian refiners are processing higher volumes of U.S. crude, which will likely reinforce the role that WTI plays on the global stage. WTI-linked oil pricing may be more relevant than ever before for the Asia market.
Footnotes
- https://www.bbc.com/news/business-65553920
- https://www.cmegroup.com/openmarkets/energy/2023/u-s--crude-oil-exports-to-eu-support-wti-as-global-benchmark.html In the Exchange’s publication we discussed the impact of U.S. crude exports to Europe and the role of WTI as a global benchmark.
- Defined as Singapore 8:00 a.m. to 8:00 p.m.
- Data source: EIA. Asia volumes include South Korea, China, India, Singapore, Taiwan, Australia, Indonesia, Japan, Malaysia, Vietnam, and Thailand.
- EIA dData for January 2023 to May 2023
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
