Saudi Aramco will fill on Wednesday all of its 8.18 million barrels of leased crude storage capacity in southwestern Japan, a source at the Japanese Ministry of Economy Trade and Industry told S&P Global Platts on Monday, as the Saudis are trying to keep hold of their North Asian customers amid OPEC’s production cuts and low oil prices.
Aramco has received a fully loaded very large crude carrier (VLCC) with 1.89 million barrels at Okinawa, which it will add to the 6.29 million barrels it is currently storing there.
Aramco has been using storage capacity at Okinawa since 2011 under agreements with Japan and Japanese companies. The Saudi company uses the storage capacity free of charge in exchange for Japan having the right to claim first the stockpiles in case of an emergency.
In July this year, Japan said that it would lift the storage capacity it allows Aramco to use for free by 30 percent, or by 1.9 million barrels, to a total of 8.2 million barrels, under an agreement to extend the storage deal until 2019.
Saudi Arabia is one of Japan’s major crude oil suppliers, accounting for around one-third of Japan’s total crude imports, according to Japan Oil, Gas and Metals National Corporation (JOGMEC), which is leasing the storage capacity.
Japan has a similar storage-lease deal with the UAE’s Abu Dhabi National Oil Company (ADNOC), under which ADNOC can lease a storage capacity of up to 6.29 million barrels at the Kiire terminal in Kagoshima, southern Japan.
Due to its right to claim the reserves first, Japan treats those storage supplies as quasi-government oil reserves, counting half of the stockpiles at each site as national oil reserves. Saudi Aramco and ADNOC must keep at least half the storage capacity full at all times.
Last week, Aramco said that it would raise the October price of its Arab Light crude oil blend for Asian clients by US$0.55 a barrel to a premium of US$0.30 to the Oman/Dubai average. The increase signaled growing demand for Saudi crude and improved refining margins in Asia due to the supply disruptions in the Gulf of Mexico that Hurricane Harvey have caused.