(Bloomberg) -- Asian buyers of crude from the U.S. Gulf of Mexico platforms that where shut by Hurricane Ida are now shopping for alternatives from Russia and the Middle East, sending prices tumbling.
American heavy crudes pumped off Louisiana’s coast, such as Mars and Poseidon, fell by more than $1 a barrel against New York oil futures Thursday. It’s a sudden shift from a rally in previous days as the impact of the devastating storm may not matter so much for China.
Buyers in the Asian powerhouse and other nations such as South Korea are looking at sour crude from the Middle East, where Saudi Arabia has slashed prices for oil destined to the Far East, traders said. For U.S. refiners, Russian Urals crude are being touted as an alternative.
Over 1 million barrels a day of output from the Gulf of Mexico is still offline more than a week after Ida hit, causing weekly U.S. production to sink by the most on record. But Chinese demand for U.S. sour crudes produced offshore has taken a sharp plunge this year, so the outage may not hurt Chinese refiners, Emmanuel Belostrino, an analyst at Kpler, said.
“Chinese demand for Mars crude has been eased substantially this year as U.S. crudes have been relatively expensive compared with other grades,” he said. “Also, China continues to take large quantities of Iranian crude oil despite sanctions, and that supply can replace sour grades normally purchased in the U.S.”
Royal Dutch Shell (LON:RDSa) Plc’s decision to declare force majeure on “numerous” supply contracts as it assesses damages caused by Ida to its Gulf of Mexico platforms is also pushing buyers to other markets.
Shell’s offshore outages have caused “Chinese majors to scramble for alternatives for as many of the 10–12 million barrels of Mars cargoes bought for September and October loadings have been canceled,” Yuntao Liu, an analyst with London-based Energy Aspects, said in a note to clients.
Some of these Chinese buyers could well cover their needs from the release of oil from the country’s petroleum reserves announced Thursday.
©2021 Bloomberg L.P.
