By Debjit Chakraborty, Yuji Okada and Serene Cheong

(Bloomberg) — In the world’s largest oil market, patrons have higher choices than U.S. crude.

As the nation inches in direction of ending the final restrictions on exports, Asian patrons will most likely have a restricted urge for food for the standard of crude on provide. Many of the area’s refiners are geared to course of heavier, cheaper oil with larger sulfur content material. The lighter and cleaner shale oil from the U.S. has additionally bought a couple of third farther to come back than different provides from the Middle East and that represents a further price.

“U.S. light oil economically is not viable for most of Asian refiners,” B.Okay. Namdeo, head of refineries at state-run Hindustan Petroleum Corp., mentioned by telephone from New Delhi. “The majority of the refiners in this region are not configured to use light oil, plus there is a long charter time and high freight costs involved.”

Horizontal drilling and hydraulic fracturing has unlocked a flood of sunshine, candy oil from shale rock, pushing the U.S. towards ending its 40-year export ban. President Barack Obama is anticipated to signal laws that may finish the restrictions, the fruits of years of lobbying by an business confronted with a home oversupply.

Shipping Costs

Oil patrons in Asia are already reaping the advantages of a world glut that’s pushed costs down about 35 % over the previous yr. The Organization of Petroleum Exporting Countries, which provides the area with most of its oil, has successfully determined to desert manufacturing limits within the hope that unrelenting stream of low-cost crude will squeeze out rivals. That’s handled Asia to a gradual stream of cargoes from the Middle East to Mexico, Nigeria and Russia as producers compete for market share.

For Japanese refiners, shopping for U.S. crude isn’t worthwhile relative to Middle East provides, in line with Masashi Nakayama, the overall supervisor for crude oil and tanker division at Cosmo Oil Co. It takes a tanker roughly 27 days to achieve the Japanese port of Chiba from Saudi Arabia’s Ras Tanura terminal, versus 38 days for a ship departing from Houston, in line with Sea-Distances.org.

U.S. benchmark West Texas Intermediate crude price about $2.09 a barrel greater than the Middle East’s Dubai oil on Friday, in line with knowledge compiled by Bloomberg. As lately as March, it was $7 cheaper. The U.S. marker grade was 79 cents beneath Brent, up from a reduction of about $7.50 on the finish of March.

Displacement

Higher delivery prices add to the premium for U.S. oil. An Aframax-sized tanker, which is usually used to hold American provides to northeast Asia, prices about $5 a barrel from the U.S., in contrast with about $2.25 a barrel for a Very Large Crude Carrier from the Middle East, the most-frequently used ship for that route, in line with Clarksons and Braemar ACM shipbrokers.

“For Asian refineries, it won’t be cost effective to use U.S. light oil,” mentioned Arun Kumar Sharma, finance director at Indian Oil Corp., the nation’s largest refiner. “But Asian refiners will benefit from those displaced volumes that U.S. tight oil will replace,” which can come from the Middle East or Africa, he mentioned.

Some cargoes of U.S. condensates, a really gentle kind of oil sometimes produced together with pure fuel, have been making their option to patrons in Asia this yr. The shipments aren’t worthwhile with present regional value variations and freight charges, in line with a survey Wednesday of three patrons and producers.

The Asia-Pacific area will devour 31.93 million barrels a day of oil in 2015, exceeding demand of 31.17 million barrels from the Americas, the International Energy Agency mentioned in a report on Dec. 11. China, India, Japan and South Korea will probably be among the many largest customers of crude, in line with the Paris-based company.

Blending Up

Both Japan and South Korea relied on the Middle East for about 84 % of their oil imports final yr, in line with the U.S. Energy Information Administration. The area accounted for about 62 % of India’s abroad provides and 52 % for China.

China, Asia’s largest importer, might buy U.S. oil because the nation’s impartial refiners search lighter crudes to combine with heavier, cheaper feedstocks, in line with Wu Kang, a Beijing-based analyst with FGE, an power researcher. Smaller crops, referred to as teapots, account for nearly a 3rd of the nation’s processing capability and 13 of them have been granted import quotas totaling a mixed 55 million tons, or 18 % of nation’s annual imports.

U.S. producers might discover a extra engaging outlet in Latin America, the place refiners are in want of sunshine, candy shale oil that may assist dilute heavier crudes widespread to the area, mentioned Ehsan Ul-Haq, a senior analyst at KBC Energy Economics.

It’s additionally not all the time about cash. Buyers in Japan and South Korea have welcomed the arrival of U.S. barrels as a result of it provides an alternative choice to select from for international locations that rely closely on the Middle East.

“If U.S. crude exports become reality, supply sources will be largely diversified,” Yoshihide Suga, Japan’s chief cupboard secretary, mentioned Thursday. “That will result in contribution to Japan’s energy security.”

–With help from Sarah Chen, Sharon Cho, Maiko Takahashi, Tsuyoshi Inajima, Jing Yang, Aaron Clark, Stephen Stapczynski, Emi Urabe and Heesu Lee.

©2015 Bloomberg News