Physical Oil Rally Powers on Amid Strong Chinese, Indian Demand

Asian buyers are snapping up oil at higher prices than last month, helping to bolster physical crude markets.

17 Dec 2020, 05:11 PM IST

Physical Oil Rally Powers on Amid Strong Chinese, Indian Demand

Oil storage tanks stand at the oil refinery in Incheon, South Korea. (Photographer: SeongJoon Cho/Bloomberg)

(Bloomberg) -- Asian buyers are snapping up oil at higher prices than last month, helping to bolster physical crude markets across the world and underpin a rally in futures.

Driven by a slew of purchases from Indian and Chinese refiners, crude values everywhere from Russia to the Middle East and Latin America have surged so far this month. Spot trading activity has been brisk as India’s largest refiner and at least one independent Chinese one got ahead of the competition to secure cargoes.

Chinese daily refining rates rose to a record for a second straight month in November, while several Indian processors are operating at close to 100% capacity on the back of stronger gasoline and liquefied petroleum gas demand. It comes as the region leads the way in the global oil market’s recovery from the demand slump brought on by the coronavirus outbreak earlier in the year.

“Asia is very much driving the market at the moment,” said Kitt Haines, an analyst at Energy Aspects Ltd. “We will need the Asian buying momentum to sustain, otherwise things could get weak.”

Here’s where prices are gaining:
Russian ESPO crude for end-January to early-February loading fetched $3.20 to $3.50 a barrel over its benchmark price this week, surging versus last month Qatar’s Al-Shaheen for February sold for around $1.30 above the Dubai price, compared with an average premium of 75 cents in the previous month Colombia’s Vasconia and Ecuador’s Oriente crudes are trading at their highest in more than a year Dated Brent benchmark was near its highest level since March on Tuesday, according to S&P Global Platts

Here’s where prices are gaining:

Russian ESPO crude for end-January to early-February loading fetched $3.20 to $3.50 a barrel over its benchmark price this week, surging versus last month
Qatar’s Al-Shaheen for February sold for around $1.30 above the Dubai price, compared with an average premium of 75 cents in the previous month
Colombia’s Vasconia and Ecuador’s Oriente crudes are trading at their highest in more than a year
Dated Brent benchmark was near its highest level since March on Tuesday, according to S&P Global Platts

Brent crude futures were little changed, trading at $50.73 a barrel at 1:50 p.m. in London, after earlier surging to the highest intraday level since early March. U.S. benchmark West Texas Intermediate crude futures traded at $47.58.

Rongsheng Petro Chemical Co., one of the most active spot-market buyers since its refinery expansion earlier this year, bought cargoes from as far away as the U.S. and the North Sea this week. A total of nine supertankers departed to Asia after loading with North Sea grades last month, compared with six for October, helping lift the key Forties grade to a three-month high.

At the same time, Indian Oil Corp. has been busy snapping up cargoes from multiple regions in the past few weeks. The nation’s largest refiner has sought everything from West African oil to grades from the Middle East and the U.S. so far this month.

Asia’s recovery is uneven, though. South Korean crude imports fell to a 10-year low last month as the virus stages a comeback in the nation. Meanwhile Japan’s Fuji Oil Co. purchased at least a cargo of Murban at a smaller premium to the official selling price than a month earlier. That came after those prices were set above traders’ expectations, however.

See also: China’s Early Start to Oil Buying Keeping Physical Market Robust

In an indication of how strong Asian demand has become is the front-month timespread for Middle Eastern benchmark Dubai crude. It has reached 60 cents a barrel of backwardation, a bullish structure where near-dated prices are higher than later-dated ones, PVM data show. The next month has also surged to 29 cents a barrel, after trading in a bearish contango in November.