The first factor is a supply and demand issue, with the vast majority of demand growth concentrated in Asia but the supply growth largely coming from the Americas outside of the United States.
The second is that energy markets are being increasingly subjected to political influences and the risk is that large blocs of supply are cut off from demand centres, as has been seen with Europe largely ending its purchases of Russian oil in the wake of Moscow’s invasion of Ukraine.
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These two factors will once again force the oil market to adapt, with longer vessel voyages, issues around obtaining suitable crude quality for refinery configurations and how to price new flows from one region to another.
The swing to new production out of the Americas was highlighted in a presentation by analysts from Argus Media during this week APPEC oil gathering in Singapore.
Crude from the Americas represents 85% of the increase in incremental global supply from non-OPEC sources from 2024 to 2030, Argus said, adding that amounted to 3.63 million barrels per day (bpd).
Only a small proportion of this comes from the United States, with the world’s largest oil producer expected to see only modest increases in output in coming years.
Larger contributions come from Canada, Brazil, Guyana, Argentina and Suriname, with some decline expected from Mexico as fields mature.
In contrast to the supply growth, the demand growth is concentrated in the East of Suez markets, Argus said, with India leading with an expected gain of 2 million bpd from 2024 to 2030.
Outside of India, the rest of the Asia-Pacific region is forecast to add 600,000 bpd of demand over the period, while China actually loses 100,000 bpd as it moves rapidly to electrifying its transport fleet.
Oil demand is forecast by Argus to rise from 2024 to 2030 by 1 million bpd in the Middle East, by 600,000 bpd in Africa and by 500,000 bpd in Latin America.
But the main takeaway is that 90% of expected demand growth is in the East of Suez markets.
There is already evidence of rising flows from the Americas to Asia, with volumes hitting a quarterly record high of 4.09 million bpd in the April to June period, according to data compiled by commodity analysts Kpler.
This was up from 3.6 million bpd in the first quarter and meant that oil from the Americas accounted for about 16% of Asia’s seaborne imports in the second quarter.
CHALLENGES
The oil industry has a solid track record in adapting to changing flows, so it’s reasonable to expect that physically moving crude from the Americas to Asia will be feasible, even if it’s more costly.
What may be more challenging is dealing with the new grades, which skew towards being lighter and sweeter, with the exception of Canada’s heavy crude.
It’s likely that there will be a surplus of light, sweet crudes at a time when the rising electrification of vehicles cuts demand for gasoline, the main product from such grades.
If more oil moves from the Americas to Asia the question also arises as to how it will be priced.
Will the West Texas Intermediate (WTI) benchmark become more important than the current global light crude standard bearer Brent, or will cargoes move to being priced more on a delivered to Asia basis?
The other big question is how will geopolitics play out in crude markets over the longer term.
U.S. President Donald Trump has made it clear that he sees energy as a political tool, making commitments to buy U.S. crude and liquefied natural gas key parts of his trade negotiations with countries.
But while this may boost purchases of U.S. crude by some countries that have reached deals, such as Japan and South Korea, it also means that countries without a deal, such as China and India, are likely to shun U.S. energy.
While crude markets have been totally free from politics, it is likely that trading will become more polarised in coming years, with importing nations being forced to choose between suppliers Trump approves of and those he disagrees with.
The problem is Trump has shown he can shift allegiances fairly quickly, which may complicate oil flows while he remains in office.
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The views expressed here are those of the author, a columnist for Reuters.
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