OPEC Oil Shipment Increases to Asia Raise Questions About Cartel's Ability to Reduce Glut

The cartel's supplies to Asia rose by 7 percent between November and January.

Yet more evidence that the Organization of the Petroleum Exporting Countries' (OPEC) cutback deal will have limited effectiveness in reducing global oversupply came Thursday, when Thomson Reuters Eikon data showed that the cartel's oil supplies to Asia rose by 7 percent between November and January, to 17 million barrels per day (bpd).

Additionally, about 30 chartered supertankers loaded with 55 million barrels of oil are currently sitting in the waters outside of Singapore and southern Malaysia, according to Eikon.

Reuters notes that Russia "has also re-routed a great chunk of its rising production toward China and the Asia-Pacific over the past decade: Russia surpassed Saudi Arabia as China's biggest supplier last year, exporting 1.05 million bpd of crude versus Saudi Arabia's 1.02 million."

Tushar Bansal, director at Ivy Global Energy, explained that "For OPEC, and here we mean the Mideast countries, Asia is their core and growing market.

"The last thing OPEC ... would want is that as they develop newer markets outside the region, some other players like Rosneft or Venezuela [would] increase their market share in what is their backyard."

Contributing to the Asian glut is 2.19 million bpd expected to be shipped this month from West African countries led by Nigeria and Angola, with China and India tagged as the biggest buyers.

Meanwhile, Saudi Arabia's Saudi Aramco said Thursday that it is boosting its official pricing for Arab Light crude to Asia in March by 30 cents to 15 cents a barrel more than the regional benchmark; it had been expected to increase pricing for the grade to 10 cents more than the Oman-Dubai benchmark.

The hike is presumably justified by what the Saudis view as a successful OPEC cutback initiative: Khalid Al-Falih, the kingdom's energy minister, told reporters late last month, "Compliance is great - it's been really fantastic; based on everything I know, I think it's been one of the best agreements we've had for a long time."

The long term impact on global inventories of so much oil heading to Asia is unclear, but Oystein Berentsen, managing director for crude at Strong Petroleum, remarked that "Oil stocks are drawing, especially in Europe; in Asia, strong demand is tightening the market, but it will take time."

OPEC has repeatedly attempted to impress the market that its cutbacks are a success, but with limited effect: earlier this week it was reported that the deal is enjoying an 82 percent compliance rate, but that wasn't enough to prevent U.S. light crude from posting a 1.7 percent decline for January, the first monthly decline since October.