SINGAPORE: Asia’s Middle East crude spot market may weaken further when trading in January cargoes kicks off this week as weak product margins are expected to weigh on prices even as winter buying could provide some support.
Producers raised their official selling prices (OSPs) for lighter grades sold to Asia, while heavy and medium grade OSPs were lowered.
Abu Dhabi National Oil Co’s crude grades turned more expensive as their differential to Dubai increased across all grades. The hikes may result in most grades trading at lower premiums to OSPs than a month ago.
Product cracks have weakened with front-month fuel oil cracks near 17-month lows and gasoil cracks close to four-month troughs, while the discount on naphtha cracks has widened since the start of the month.
“Refining margins are poorer, fuel oil is weaker than ever, so the lower OSP (which is for the heavier grades) may not be helping much,” said a trader with an Asian refining firm.
“The rest of the distillates cracks have also come off, so I reckon the high OSPs for lighter grades will also work against the premium for this month’s trading.”
Spot premiums for December crude had weakened last month from the multi-month highs recorded for November cargoes as almost all producers raised their OSPs.
Light crudes, which were raised by a higher margin, were the worst affected with premiums for Adnoc’s light sour Murban crude slipping to 10-15 cents above OSP, from 90 cents in November.
Still, winter demand will keep buyers in the market and support prices. Crude buying typically jumps in the last quarter of the year as winter in the northern hemisphere pushes up demand for heating fuel.
Early signs of a recovery in China, the world’s biggest oil consumer, also offer a glimmer of hope.
China announced on Saturday that it is effectively turning the corner on its economy and is likely to meet its growth target for the year.
China’s crude oil imports in October rose 13.8 percent from a year earlier to about 5.58 million barrels per day, the third-highest pace this year, customs data showed.
The country’s implied oil demand grew 6.5 percent in October from the year before, close to September’s record high, according to Reuters calculations based on refinery output and net imports of refined fuels.
Reuters
