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Asia’s spot crude market peaks on possible oil reserve release -Breaking

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© Reuters. FILEPHOTO: This VLCC tanker was seen at Ningbo Zhoushan Port, Zhejiang, China, May 16, 2017. Picture taken May 16, 2017. REUTERS/Stringer/File Photo

Florence Tan

SINGAPORE (Reuters – Asia’s spot oil market has reached its highest level in two years after hitting near 2-year highs. The possible release by top buyers globally of crude oil had a negative impact on sentiment and weighed down prices.

The administration of U.S. President Joe Biden asked big oil buyers https://www.reuters.com/business/energy/exclusive-us-asks-big-countries-coordinate-releases-oil-reserves-sources-2021-11-17 like China, India and Japan to consider releasing crude stockpiles. China stated that it was working to release its crude oil reserves. Japan and South Korea were reviewing the U.S. request.

According to traders, the possibility of unprecedented oil releases by the top buyers has slowed buying interest over the past sessions. This resulted in lower spot prices for crude oil sold to Asian buyers from the Middle East or Russia.

This week’s sharp decline in Brent’s backwardation (where contracts for immediate delivery tend to be more costly than later ones) is a sign of market tightness. Brent’s backwardation narrows after hitting multi-year highs in late October, https://fingfx.thomsonreuters.com/gfx/ce/lbvgnbdrzpq/BrentSpreadsNov2021.png

Brent’s premium in Dubai to quote prices has also dropped from 8-year highs reached earlier this month. This may make it more affordable for Asian buyers to purchase crude oil from the Atlantic Basin.

Trader for an Asian refiner claimed that “the pressure valve was released for Asia with EFS being off”, referring the Brent-Dubai spread also known by Exchange for Swaps, (EFS).

“Before the arbitrage closed, there were no other supplies. Even India was not allowed to access it.”

The spot prices for Middle East crudes are also falling from highs of multi-months ago as there is more supply. Brent’s premium to Dubai quotes narrows from 2013 high, https://fingfx.thomsonreuters.com/gfx/ce/zdpxonglovx/Pasted%20image%201637290469546.png

China is a top importer of U.S. Mars crude cargoes. The premiums for Oman crude oil for February arrival are $50-$1 per barrel, according to traders. However, volumes were small.

A senior trader for crude oil in Singapore said that prices did rise, and therefore the threat (SPR Release) was more powerful than actual doing it. Middle East crude benchmarks, https://graphics.reuters.com/ASIA-OIL/PRICES/gdvzyderwpw/chart.png

Spot premiums for light oils – Russian Sokol, ESPO – were also down by 1 to 2 dollars a barrel following their 22-month-high. Russian Sokol, ESPO crude premiums fall after hitting 22-mth highs, https://fingfx.thomsonreuters.com/gfx/ce/znvnekmybpl/Pasted%20image%201637290551617.png

The fall in ESPO premiums is primarily due to poor demand from independent Chinese refiners.

The second trader stated that he believed it had spooked Shandong’s refineries. “It is translating into a slowdown on the market.”

Asia’s refiner margins also fell from 2-year highs after profits were made for gasoline, naphtha and other distillates. These gains have been corrected by sharp gains over the past two months. Asia refining margins slip from 2-year highs, https://fingfx.thomsonreuters.com/gfx/ce/xmvjoryzmpr/Pasted%20image%201637293372175.png

According to the trader, “The market’s original strength was buoyed by Europe’s (power crisis) situation.”

“Everyone had been going crazy about LNG. However, then came back the COVID-19 worries over there. It seems that things are starting to weigh a bit.”

Everyone has seen the rug being pulled out from under them. “Most buyers ought to be covered now and China is nowhere visible,” he said.



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