Media: Surging Gulf oil output forces rare shift of cargoes to US West Coast

Oil exports from Persian Gulf producers are being redirected to destinations as far away as the US West Coast as a rapid recovery in regional output outpaces demand from Asia, Bloomberg reports.

The shift comes as the reopening of the Strait of Hormuz and an interim US-Iran peace agreement have enabled major Gulf producers, including the United Arab Emirates, Kuwait and Qatar, to restore production. At the same time, Asia's refiners—traditionally the largest buyers of Middle Eastern crude—are already well supplied, while top importer China has remained largely absent from the market.

As a result, refiners are seeking alternative buyers, with some cargoes now being offered to western markets.

According to traders familiar with the matter, UAE crude grades are being marketed to destinations as distant as California. The US West Coast has not imported crude from the UAE since late last year, according to Kpler data. Similar grades are also being offered to buyers in Hawaii, which, if a deal is finalized, would mark the first shipment of Middle Eastern crude to the state since 2018.

The global oil market is undergoing a rapid transition as the acute supply tightness triggered by the outbreak of the conflict gives way to the prospect of oversupply. With commercial shipping through the Strait of Hormuz resuming, Gulf producers are moving quickly to restore previously idled output, flooding traditional Asian markets that had temporarily diversified supplies during the disruption by purchasing more US crude.

"Asian refineries are already well supplied till August, and the prompt barrels released from the Strait of Hormuz simply pushes the balances into an overhang, without China picking up on demand," said June Goh, senior oil market analyst at Sparta Commodities SA.

"Asia's surplus is now even making it economical to sell Middle East oil to western destinations," she added.

The unusual trade flows have become commercially viable as price dynamics have shifted sharply. Prices for Middle Eastern crude have fallen significantly in recent weeks, with many grades now trading at discounts to the regional Dubai benchmark.

Meanwhile, US crude inventories have continued to decline, supporting higher domestic prices. Stockpiles at the Cushing, Oklahoma, storage hub—the delivery point for West Texas Intermediate (WTI) futures—have fallen to their lowest level since 2014. Inventories on the US West Coast, including Hawaii, are at their lowest since 2004.

Although Europe and the United States continued importing some Persian Gulf crude during peacetime, volumes declined during the conflict as Asian buyers outbid other regions for the limited supplies leaving the Gulf.

The flow of US crude to Asia is also slowing. According to traders, South Korean refiner GS Caltex Corp. purchased no US crude during the June trading cycle for cargoes scheduled to load next month, as WTI was more expensive on a delivered basis than competing grades such as Abu Dhabi's Murban crude.

Total US crude sales for July-loading cargoes bound for Asia are estimated at between 800,000 and 900,000 barrels per day, according to traders familiar with the market. Based on Kpler data, that would represent a decline of more than 50% from June levels and mark the lowest monthly volume in about a year.

By Vafa Guliyeva