Heh! For years, OPEC has been an energy bully as well as funding Middle Eastern spawned Islamism. It seems, however, that their days of exclusively using an oil club to get their way is fading:
Chinese independent, or teapot, refiners are bringing in rare cargoes of North American heavy crude in a new long-distance flow that traders say has only been made possible by OPEC’s output cuts and ample supplies in Canada and the United States.
In April, at least 1 million barrels of the heavy crude Mars, pumped from the U.S. Gulf of Mexico, are expected to land in China’s Shandong province and 1 million barrels of a second unidentified heavy grade will arrive in China, trade and shipping sources said last week. This follows the arrival in January of 600,000 barrels of U.S. Gulf Blend, a heavy crude made up of a blend of various U.S. and Canadian grades loaded onto ships on the U.S. Gulf Coast, according to the sources and shipping data.
Heavy crude is typically more dense and viscous than other oil grades. Refiners with facilities that can process these grades value heavy crude because its lower cost results in higher margins from producing fuels from these grades. The Organization of the Petroleum Exporting Countries’ (OPEC) output cuts have targeted heavy crude, with linchpin producer Saudi Arabia and Venezuela reducing their exports of heavy crude. That has increased the price of Middle East heavy crudes for Asian delivery, making it economical for traders to ship crude from Russia, the Atlantic Basin and the United States to Asia.
“The OPEC cuts started from medium and heavy grades and Venezuela (a key supplier to China) is exporting less,” said a Singapore-based crude oil trader.
Cuts? OPEC is going to their old playbook – raise the price of oil by cutting off supplies. It seems that now buyers have choices – and OPEC now has to compete where it never had to before.
The tightening heavy crude supplies are occurring at a time when demand for these types has increased after refiners upgraded their plants, the trader said. Heavy crude typically yields a higher percentage of residue fuels when first processed at a refinery and that residue is then reformulated into higher-value fuels such as gasoline and diesel fuel in so-called cracking units. Since late last year, China, the world’s second-largest oil consumer, has stepped up imports from North America, one of the few regions where oil production is growing.
OPEC’s power came only from the ability to hold a small number of oil producers together in a cartel (not that this is new news). The problem for them is that there are now more producers than ever and they aren’t playing ball with OPEC. Nope, they are exploiting it – you really think that US Frackers are playing the same game? OPEC certainly has been doing their thing for supertankers worth of money, but the real coin of the realm for them was the ability to manipulate power around the world. Frackers, on the other hand are only interested in the former – and increasingly able to compete better and faster than that hide-bound cartel.
A nice side-effect is that OPEC is doomed. Still influential but now they all have financial concerns on the home front (re: the Saudis actually issuing debt to run their country??). But they can’t control the price of oil on their own anymore.
And that is the real power of fracking.
(H/T: Instapundit)
