Florence Tan and Noah Browning

LONDON/SINGAPORE – Recent changes in crude oil prices have given the largest exporter of oil from the Atlantic Ocean basin the best opportunity in many months to sell to Asia. But sales remain slow as COVID-19 worries cool demand.

Omicron coronavirus has reduced oil consumption in Asia, just like U.S. sellers and West African traders pinned their hopes to the shifting market structure that would pave a better path eastward than oil from the Middle East.

Global benchmarks Brent and West Texas Intermediate crude were pummelled last week as tight supplies eased with U.S. strategic petroleum reserve https://www.reuters.com/business/energy/what-is-spr-emergency-oil-stash-biden-may-tap-2021-11-18 (SPR) sales and a decision by the Organization of Petroleum Exporting Countries and their allies to boost output https://www.reuters.com/markets/commodities/opec-weighs-output-policy-omicron-fears-hammer-prices-2021-12-02.

The premium for Dubai quoted oil dropped to $2.56 per barrel last week. It was the lowest point since March. According to traders and data from Refinitiv, this makes the Atlantic Basin grades less attractive to Asian buyers. (Graphic: Brent-Dubai spread, Angolan Girassol crude, https://fingfx.thomsonreuters.com/gfx/ce/lgpdwonamvo/Pasted%20image%201638861095531.png)

As well as the U.S. WTI Midland crude, Indian oil sales to India from Nigeria and Angola have increased.

Angolan Girassol crude oils and Nigerian Qua Iboe were offered for robust premiums at $1.60 and 1.40 respectively above Brent per barrel, on a freeboard basis. This is still a bargain compared to Middle East light grades. [CRU/TENDA][CRU/WAF]

A seller of West African crude oil said that there was an open arbitrage window and the demand from India has been positive in recent weeks.

However, trading has become quieter over the past few days. Many things remain uncertain regarding how/if any new lockdowns may affect the demand for the New Year.

Asia might be less hungry with the upcoming refinery maintenance season starting in March. Refining margins are also likely to have fallen sharply due to Omicron concerns.

Chinese buyers won’t be tempted to buy more expensive barrels. Independent refiners have been allocated lower import quotas for this year, while state-owned companies are already in high supply.

In Shandong, the province where most of the independents are located, ongoing tax investigations have also limited demand for Brazilian and African oils in the largest importer in world.

Beijing also expects to hold a second SPR crude sale from its east Zhoushan warehouse.

One East Asian buyer said that offers for Congolese Djeno grades have fallen to $2/barrel above March ICE (NYSE 🙂 Brent, which is for China delivery, from their peak of $3/barrel premiums.

We’ve done most of our year-end buying. A second buyer stated that the prices are too high, and it is not fair for the Atlantic basin crude to be this price now because of the coming pandemic.

Although the initial U.S. SPR release had lowered the value of Atlantic Basin crude sour grades like Mars crude, some cargoes could still be exported to Asia. However, the market is only now “marginally open,” a Singaporean trader stated.

Mars spot discounts have risen to their highest levels in two years, after WTI’s Brent discount increased. The increase spurred U.S. demand. [CRU/C]

A trader claimed that it was once cheap, however now it isn’t. Also, not much trading has occurred so I don’t know if any (cargoes have been placed). (Graphic: WTI-Brent spread, Mars crude, https://fingfx.thomsonreuters.com/gfx/ce/lbpgnlbwqvq/Pasted%20image%201638860656821.png)