Asia Crude Imports Below Pre-Conflict Levels Amid Strait of Hormuz Concerns

Key facts

• Asia's crude oil imports in June are projected at 20.71 million bpd, below pre-conflict averages.
• Concerns over the Strait of Hormuz and high freight costs have reduced Middle Eastern crude purchases.
• Asian refiners have secured enough non-Middle Eastern crude for July and August, reducing immediate needs.
• Middle Eastern producers, including Iran, are increasing oil output and exports.

Asia's crude oil imports are expected to remain below pre-conflict levels in June, with projections at 20.71 million barrels per day (bpd), a decrease from the 26.79 million bpd average seen prior to recent geopolitical tensions. This slowdown follows a period where Asian refiners had purchased millions of barrels of UAE, Saudi, and Iraqi crude.

Lingering uncertainties about the navigability of the Strait of Hormuz and high freight costs have deterred Asian buyers from continuing their recent buying spree. Refiners now have sufficient non-Middle Eastern crude lined up for July and August arrivals, diminishing the immediate necessity for spot purchases from the Middle East. Most refiners have concluded their crude cargo orders for June and July.

Middle Eastern producers, including the UAE, Iraq, Kuwait, Saudi Arabia, and Iran, are increasing or preparing to increase production and exports. Kuwait expects to raise its oil production to 2 million bpd within a week, and Iraq targets restoring output above 3 million bpd from its southern fields within two months. Iran, benefiting from a two-month U.S. sanctions waiver until August 21, is pitching its oil to Asian buyers beyond China, including India, South Korea, and Japan.

However, Asian importers have not rushed to acquire Iranian crude due to the temporary nature of the waiver and the fact that most are already well-stocked. Significant discounts would be required from Middle Eastern producers to incentivize further buying, as high insurance and tanker freight costs are not offset by current crude prices. The price of benchmark Middle Eastern crude grades has recently fallen, with spot premiums turning into discounts amid hopes of increased supply.