Kazakh Oil Heads to Asia Away from Saturated Europe

May 2, 2013

Kazakhstan's oil exports to Asia are on the rise as it seeks to cultivate new buyers for its light crudes outside the saturated European market before steep output increases in the next few years, Reuters reports.

Since U.S. shale production has boomed, North American demand for light sweet oil grades from countries such as Libya, Algeria, Nigeria and Azerbaijan has plummeted, creating a global glut of light oil.

Europe's struggling refineries cannot absorb all the slack, and that leaves Asia, which prefers heavier grades, as the new target.

At least 2 million barrels of CPC Blend, Kazakhstan's main crude grade for export, loading in May from Russia's Black Sea port of Novorossiisk will be heading to Asia, several traders said.

A May 10-11 cargo is expected to go to Indonesia's Pertamina, while a May 19-20 shipment was purchased by India's Reliance, they said.

A larger-than-expected CPC Blend export programme in May has added pressure on sellers to push barrels east. The programme was set at around 720,000 barrels per day (bpd), up from around 655,000 bpd in April.

The cargoes show the movement east is becoming more of a trend than a spot arbitrage, because they follow hot on the heels of a couple of April purchases.

Pertamina bought a 600,000 barrel of Kazakh Tengiz crude, similar in quality to CPC, for the first time for May delivery, while Eni also recently sold a cargo of CPC to Asia.

CPC Blend exports are expected to rise by a fifth to around 800,000 bpd from July and reach 1.3 million bpd over the next few years Kazakhstan it taps new fields and launches a pipeline via Russia to the Black Sea.

Sellers of light grades must increasingly entice Asian refiners with advantageous prices, and traders said Asian buyers were able to get CPC at a discount to the European price.

"It looks more like forced sales when people send volumes outside Europe as they know they cannot fully place it here without dumping prices steeply," one Mediterranean trader said.

Small volumes of CPC Blend have moved east before. However, unlike rival Azeri Light, it has a much less established market in Asia.

CPC is a grade that can be refined to produce high yields of gasoline and naphtha, while Azeri Light is sold east more frequently due to its high yield of diesel.

China in particular favours heavier grades, which are diesel-rich.

The CPC price hit its lowest level since early 2005 in June last year, and sellers are keen to avoid another collapse of the price in Europe.

European refiners are struggling to stay afloat in the recession-hit region, and more capacity is expected to be mothballed due to falling U.S. imports and the entrance of game-changing Middle East refineries.

The main producer of crudes that make up CPC Blend is joint venture Tengizchevroil, led by Chevron with a 50 percent stake and including state oil company KazMunaiGas with 20 percent.

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