Asian oil buyers are increasingly becoming confident that Angola’s exit from OPEC will prompt the West African producer to sharply boost production without restrictions and offer more cargoes at a time when turbulence in the Middle East is keeping importers in the region on the edge.As the first signs of rising production this year become visible — output in Angola in March rebounded from a four-month low in February — Asian countries like China, South Korea, Thailand and India see this as a positive development, as it will add to the region’s supply sourcing flexibility.”As the largest recipient of Angolan crudes, Asia will generally benefit from Angola’s oil supply now as it will be free of restrictions since they are now outside of OPEC,” said Kang Wu, global head of oil demand research, S&P Global Commodity Insights, based in Singapore.
Angola, sub-Saharan Africa’s second-largest producer, pumped just under 1.13 million b/d of crude in March, up from around 1.11 million b/d in February, according to an update from energy regulator Agencia Nacional de Petroleo, Gas e Biocombustiveis (ANPG).Despite the small uptick, Angolan officials are yet to deliver promised production increases, four months after the country quit OPEC following a month-long dispute over revisions to its output quota, which Angola said would sap vital investment in its upstream sector.
As recently as 2010, Angola was producing a record 1.9 million b/d of crude but has since seen its production fall due to insufficient investment, a lack of exploration activity and the wider departure of international oil companies from mature basins and fields in West Africa. Its output dipped below 1 million b/d in March 2023, but has since recovered.
Opportunities in India, China
The share of African crude oil in India’s total crude imports dropped to its lowest level in 2023 as refiners took record volumes of discounted Russian oil and raised purchases from Middle Eastern producers under annual deals.Indian refiners traditionally have been mostly buying African oil through spot tenders. However, the nation’s thirst for African oil has been recently dampened due to plentiful availability of Russian oil sold at deep discounts.
The share of West African crude imports in India’s total import basket dropped to 4% in 2023, from 13% in 2019.India’s crude imports from West Africa were about 600,000 b/d in 2019, according to S&P Global Commodities at Sea. The volume dropped to about 200,000 b/d in 2023. Out of the 200,000 b/d West African oil imported in 2023, only about 60,000 b/d came from Angola, compared with a high of 119,000 b/d in 2019.
“There were two main reasons for crude imports dropping from Angola. First, there was an overall drop in West African imports due to a rise in the share of Russian barrels, and secondly declining production in Angola,” said Himi Srivastava, South Asia oil analyst at S&P Global Commodity Insights.An Indian refining source said: “Any rise in Angola’s production will be good for India. The dynamics could change again with rising production, and we might look to buy more from them.”
Angola produces heavy crude that is popular among refineries in China, which imported 1.1 million b/d of Angolan oil in March, according to CAS. Its crude grades, including Girassol, Cabinda and Dalia, also find buyers in India and Europe.”Leaving OPEC can help Angola to attract upstream investment, but in a short term, we are unlikely to see notable increase in supplies to China because China has already been taking 80% of Angola’s production,” a London-based analyst said.
A Singapore-based crude trader who supplies oil to China said that inflows might not change immediately, at least until production shows a strong rising trend. “Flows to China are more likely to be stable this year.”China imported 572,000 b/d of Angolan crudes over January-February, rising 7.5% year on year, the country’s customs data showed. In 2023, shipments to China were 603,000 b/d, making Angola the eighth-largest crude oil supplier to China. In 2022, volumes were marginally higher at 604,000 b/d.
Thai, South Korean refiners keen
Feedstock and trading managers at major refiners in Thailand and South Korea said that the West African producer could play a significant role in Asia’s crude supply security if it has the freedom to produce and export as much as possible, without any constraints from OPEC output rules.
Light sweet Angolan crude grades have always been an essential part of the Thai crude slate and Thai refinery linear programming model feedstock strategy over the past few decades, but shipments of the West African barrels had dropped significantly in recent years due to the OPEC quota rules, according to a senior feedstock and logistics manager at state-run PTT.Thailand imported 11,515 b/d of crude from Angola in the first two months of 2024, compared with an import average of 22,794 b/d in 2023 and 38,610 b/d in 2022, data from Thai customs showed.
“Major light sweet crude supply sources like the US and West African producers are ideal because they provide Asia with a very dependable and solid secondary supply security option, outside of the Middle Eastern sour crude circle,” the PTT feedstock management source said.”Angola leaving OPEC is great news for Asian end-users of course. It’s quite possible that many Asian refiners are actively looking to tie up for long-term contracts,” the source said.
South Korea’s refining industry used to take a few odd Suezmax cargoes of Angolan heavy sweet crude about 10 years ago. And now with production rising, it’s possible for refiners to reassess the West African crude supply strategy if Angola can consistently offer 1-2 million barrels every trading cycle, according to feedstock managers at two major South Korean refiners.”We believe OPEC quota is an extremely sensitive issue to discuss and talk about within the organization, but from an Asian end-user point of view, the more small and medium-sized producers leave the group, the better,” said a feedstock trading and inventory manager at a South Korean refiner.
Source:https://www.spglobal.com