PETROANALYSIS || ARTICLE

For Kuwait: Asia, Europe and Africa better markets than US

Published on

December 16, 2018

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Article by

Petroanalysis Team

According to Independent Oil Analyst Kamel Al-Harami the United States is not an attractive market for Kuwait.

Historic background… Kuwait’s oil history is not very long. Gulf Oil was the first company to sign an oil agreement with Kuwait back in the early 1940s. It was reluctantly followed by BP.

And the first surprise to many… However, not a single shipment of Kuwaiti oil went to the USA back then, as Gulf Oil shipped all of its Kuwaiti oil to Europe and Asia; and so did BP.

The first oil shipment sent to the US was in late 1976 with small cargoes of clean products sent to the East Coast.

However, the relations did not last for long.

The year 1984 witnessed the start of the oil relations between Kuwait and the USA with the shipment of large volumes reaching more than 500,000 barrels of Kuwaiti crude oil per day to more than ten US companies.

All the deliveries were made on Kuwaiti flagged vessels.

Eventually, selling Kuwaiti oil to the US did not seem attractive and Kuwait Petroleum Corporation (KPC) decided to slowly phase out of it and seek markets with higher returns such as Asia and Europe.

Also, the legislation related to marine affairs and pollution repelled Kuwaiti tankers from using American waters, which proved to be another reason to avoid the trade altogether.

Commercial interests

Kuwait Petroleum Corporation (KPC) stopped its crude oil sales to the US for one simple reason – the US market is not attractive and offers very low profit margin.

Also, the US market is uncompetitive and unattractive when compared to other global markets such as Asia, Europe and Africa.

Kuwait gains profit of more than $10 per barrel from them instead of the USA. Therefore, the choice was simple and the decision was easy; nothing more, nothing less, Kamel Al-Harami wrote.

In addition, Kuwait does not need to look for other markets, as its sales are fully committed. If any spare volume is available, then Kuwait will sell them at the most attractive prices, but certainly not to the US for low returns.

A point to be noted, according to Q8 Daily News, is that Kuwait’s crude oil exports to Japan in October jumped 28.3 percent from a year earlier to 7.11 million barrels, or 229,000 barrels per day (bpd), overtaking Qatar to become Japan’s third-biggest oil provider, Japanese government data showed .

The volume of Kuwaiti oil bound for Japan rose for the first time in two months, providing 7.4 percent of the Asian nation’s total crude imports, compared with 6.1 percent in the same month of last year, the Japanese Natural Resources and Energy Agency said in a preliminary report. (*)

The surge of Shale gas

Following the sale of its crude oil, Kuwait also started selling Liquefied Petroleum Gas (LPG) based on long-term contracts but it unfortunately did not last long again because of the emergence of shale gas, which made Kuwaiti gas prices very unattractive.

However, even though Kuwait lost both crude oil and gas sales purely on commercial grounds, it managed to find another attractive market, so both sides were happy with the final outcome.

At present, there are no financial benefits in selling to the US market, as the Asian outlets give us much attractive profits – better than $10 per barrel.

At the same time, demand is strong due to the possible boycott on Iranian crude oil. US is becoming independent with its own domestic oil especially its shale oil. It could become the second highest, if not the highest, oil producing country by the end of 2030.

Therefore, refraining from the US market was based on our own commercial decision Kamel Al-Harami asserts.

Note:
(*) Japan is the world’s-third biggest oil consumer after the US and China. Its overall imports of crude oil grew 5.5 percent year-on-year to 3.09 million bpd for the first expansion in two months. Shipments from the Middle East, accounted for 86.2 percent of the total, down 1.5 percentage points from the year before. Saudi Arabia remained Japan’s No.1 oil supplier, with imports from the kingdom rising 8.2 percent from a year earlier to 1.26 million bpd, followed by the United Arab Emirates with 760,000 bpd, up 12.6 percent. Qatar ranked fourth with 220,000 bpd and Russia fifth with 162,000 bpd, respectively.


Sources:

07/10/2018: Link
04/12/2018: Link

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