Real Oil Price Rally Fades as Asia’s Buying Spree Winds Down
An offshore oil platform is seen in an aerial photograph in Rio de Janeiro. (Photographer: Dado Galdieri/Bloomberg)

Real Oil Price Rally Fades as Asia’s Buying Spree Winds Down

A rally in the physical oil market is losing steam as Asian refiners ease purchases after an earlier-than-usual buying spree.

Many processors in the region have almost fulfilled their needs for spot cargoes that will be mostly loaded in January and February, according to traders. Asian demand had driven up the price of real barrels of oil everywhere from the Middle East to Russia and Latin America, with some independent Chinese refiners snapping up crude early in the month to secure supply.

Abu Dhabi’s Murban crude was last week sold in the Asian spot market below its official price for the first time since August, with Total SE also offering the grade at a discount on S&P Global Platts’ electronic platform on Friday. Spot differentials for Russia’s ESPO have also slipped from a six-month high.

The drop in Russian and Middle Eastern oil prices has been exacerbated by higher oil pricing from Persian Gulf producers and refiners acquiring cheaper crude from the Atlantic Basin, especially the U.S. While this buying initially pushed American oil prices higher, purchases have declined and the cost of physical barrels has followed.

Real Oil Price Rally Fades as Asia’s Buying Spree Winds Down

The premium of Oman crude versus Dubai oil, meanwhile, fell to the lowest in more than three weeks on Monday, another indication of softness in the physical market. The backwardation in January-February Dubai swaps also narrowed to 17 cents a barrel the same day, compared with 33 cents at the start of last week, according to data from PVM Oil Associates.

Buying hasn’t come to a complete halt, however. China’s Rongsheng Petro Chemical Co. is seeking light or medium oil for loading in February, Taiwan’s Formosa Petrochemical Corp. is looking to buy cargoes loading the same month, while India’s Mangalore Refinery & Petrochemicals Ltd. has a tender out for more prompt high sulfur crude. South Korean refiners have also purchased about 8 million barrels of North American crude for March arrival.

China, meanwhile, gave private refiners and traders almost 123 million tons of oil-import quotas in the first allocation for 2021, 18% more than the first batch for this year, according to people familiar with the matter.

Global spot differentials:
  • Iraq’s state oil marketer SOMO sold 1 million barrels of Basrah Light for end-January loading at about parity to its official price, compared with a cargo sold earlier this month at a premium of 20-29 cents a barrel.
  • Russian Urals, a star crude in the European market over the past several months, traded $1.25 a barrel less than Dated Brent late last week, the lowest since mid-April.
  • Several key Angolan grades including Dalia, Girassol and Pazflor have pared gains so far this month after rising by as much as $1 per barrel for January shipments compared with December.
  • Mars Blend, a medium-sour U.S. crude, was 85 cents a barrel above Nymex futures on Monday, from $1.20 on Dec. 14, while Light Louisiana Sweet was $1.80 over futures, down from $2.

Recent easing in Asian buying has filtered through to other markets. Caspian CPC Blend, which is made up of crude from Kazakhstan and shipped from a terminal in the Black Sea, has weakened, while in the U.S., physical prices eased 20 to 40 cents a barrel within about a week. Permian grades such as West Texas Intermediate were $1.45 above Nymex futures on Monday, after reaching a $1.80 premium on Dec. 14.

Key North Sea crudes, especially Forties, are still holding, but traders said demand isn’t strong enough to mop up almost 7 million barrels that are being stored on tankers.

©2020 Bloomberg L.P.

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