Oman is expected to cut its crude oil exports to Asia by as much as 15% from June onward to meet rising domestic demand, but the move is likely to have limited impact given slowing imports from China’s independent refiners.

“The Ministry of Oil and Gas has informed its customers on contract in Asia that it will reduce supply by 15% starting in June. The supply cut is to meet rising demand at the state-owned Sohar Refinery”, the Times of Oman reported Sunday, citing an unnamed oil ministry official.

The ministry could not be reached for a comment.

However, market sources said they had been expecting the cuts with new units at Oman’s Sohar refinery due online this year.

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Oman Oil Refineries and Petroleum Industries Company, or Orpic, is currently expanding the Sohar refinery, raising capacity to 198,000 b/d, from 116,000 b/d at present.

Orpic completed the mechanical work on the crude and vacuum distillation units, as well as a kero-merox unit in January.

The refinery had already completed a revamp of the residue fluid catalytic cracker last year.

One Singapore-based crude trader said Monday: “They have been telling term lifters before 2017 renewal that with Sohar [refinery coming online], they will cut term exports, but they just could not confirm which month [at that point].”

LIMITED IMPACT SEEN

For a number of reasons, market sources suggest the impact of the cut may not be that great. According to another crude trader Monday, the cuts will only affect exports to term holders with Oman’s Ministry of Oil and Gas.

“That’s only MOG-term related and not an overall 15% [export] cut”, the trader said. “Equity holders’ [exports are] not affected. The actual impact to exports is only a single digit percentage.”

Others agreed that the impact of the export cut was likely to be limited due to the slowdown in imports by China’s independent “teapot” refiners. Oman supplied China’s independent refiners with 670,000 mt in February, up 8% from January.

“That’s a big cut — but if [Chinese] teapot [refiners] demand declined [due to a lack of crude import quotas], the cut will make sense,” an East Asian crude trader said.

Crude imports by the independent refiners were expected to slow down as several have used up most of their allocation from the first round of import quotas.

They will need to wait until June for the second batch of quotas to be allocated by the government before they can resume purchasing, market sources said.

A total 45.64 million mt of quota allocations were issued to 19 independent refineries in the first round in January. These were based on the volumes imported in the first 10 months of 2016.

This resulted in some refiners getting sufficient allocation in the first round this year to cover their entire year’s requirements but others which had imported a relatively small volume in those 10 months facing a shortfall, especially if they have raised runs this year.

Latest government data showed Oman’s crude deliveries to China in February accounted for 82.5% of total exports for the month and rebounding by over 20% from a three-year low in January.

COMPLIANCE WITH OPEC/NON-OPEC CUTS

The Sultanate’s crude oil production and exports have already been reduced this year, as part of its commitment to the OPEC/non-OPEC agreement reached at the end of 2016 between 24 major international producers to cut output.

Oman produced around 883,000 b/d in February, the latest figures from the sultanate’s National Center for Statistics and Information showed, down 4.4% from 923,000 b/d in October, the benchmark month from which production cuts are calculated.

This is just short of its pledge to cut output by 5% in the first six months of this year. But Oman’s oil exports did fall by 55,000 b/d to 805,000 b/d, or 6.4%, month on month.

The decline in exports was due to a large drop in shipments to South Korea, down to just 37,000 b/d in February, compared with 143,000 b/d in January.

Oman is a member of a five-country committee — along with Kuwait, Algeria, Venezuela and Russia — which met in Vienna Sunday, tasked with monitoring compliance among OPEC and non-OPEC producers.

The committee pegged OPEC compliance at 106%, driven largely by Saudi Arabia, while for the 11 non-OPEC members it is far less, with reports estimating it at around 60%.

–Ada Taib, ada.taib@spglobal.com
–Adal Mirza, adal.mirza@spglobal.com
–Edited by Maurice Geller, maurice.geller@spglobal.com

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