China’s Cooling Oil Demand Has Asian Physical Prices Sliding

(Bloomberg) -- The price of physical oil barrels traded in Asia has slipped after Chinese demand cooled following a record purchasing spree.

Spot premiums of Russian ESPO crude -- favored by Chinese refiners due to the shorter export time -- have more than halved since last month, while medium-sour Upper Zakum oil from the U.A.E. recently sold at a steep discount. Inter-month Dubai swaps flipped back into contango on Friday, according to data compiled by Bloomberg, signaling concerns about potential over-supply.

China’s oil buying has slowed in recent weeks after rapidly rebounding from a virus-driven lockdown, which led to a cluster of tankers waiting off ports to unload their crude cargoes. Processing rates at the nation’s independent refiners started to ease from record levels in mid-June, while massive floods across the country are expected to crimp consumption.

In the latest reported deal, Surgut sold four cargoes of ESPO for September loading at about a $1.40 to $1.60 a barrel premium to the Dubai benchmark to two trading houses, according to traders who asked not to be identified because the information is confidential. That compares with cargoes sold last month for a premium of around $3.80. The grade can be shipped within a week from Kozmino in Russia’s Far East.

The spread between August and September Dubai crude contracts was at a contango of 7 cents a barrel as of 8:30 a.m. in Singapore after flipping into the market structure Friday for the first time in about a month, according to data from PVM Oil Associates. Contango is where future prices are higher than prompt cargoes and typically signals an oversupply.

©2020 Bloomberg L.P.