SINGAPORE: Spot Middle East crude oil cargoes may continue to be mired in discounts next week in Asia, even though several producers have slashed their monthly official selling prices.
While these term price cuts, particularly on lighter sour grades with a high yield of money-losing “clean” products such as gasoline and distillates, have lent support, soft demand and a lingering risk aversion continue to weigh on sentiment.
Given ample crude stockpiles - an issue that may be discussed when the Organisation of Petroleum Exporting Countries meets on Tuesday in Vienna - Asia’s refiners aren’t likely to be in a hurry to step in.
“Fuel oil alone can’t hold up the market (indefinitely),” a senior official at a South Korean refinery said, noting profit margins have already started to thin.
Crack spreads on the heavy product, which has shored up overall refining margins for the past two months, were valued on Friday around Dubai crude minus $7.80 a barrel, slightly weaker from a week ago.
However, given the differential had shot up to minus $2.50 a barrel midweek, the decline fueled a sense the entire refined-product complex may be heading deeper into bear territory.
Refiners say they consider spot cargoes somewhat pricey, as they have ample supplies under term contracts to rely on.
Late on Thursday, Qatar Petroleum slashed its OSPs retroactively for August, but they may not be very competitive when compared with other grades.
As a differential to Dubai, Qatar Land was reduced by $1.20 a barrel from the previous month, whereas Abu Dhabi National Oil Co’s flagship Murban grade was cut by $1.40 a barrel.
Even so, the offers of Saudi Arabian Oil Co, whose crude is sold entirely under term contracts, appear even more attractive, with the popular Arabian Extra Light marked down by $1.50 a barrel.
This means November-loading spot cargoes, including Qatar Marine, Adnoc’s Lower Zakum or Umm Shaif, and even fuel oil-rich Omani crude, are unlikely to attract bids at a premium in the coming days, traders said.
Watch for Kuwait Petroleum Corp and National Iranian Oil Co to raise their October OSPs next week; each is likely to take cues from Saudi Aramco, which hiked Arabian Medium by 70¢ a barrel.
Some support may come from a lack of competition to supply to Asia, with Atlantic basin sweet crude getting relatively more expensive despite a fall in London Brent futures.
The reference Brent premium to Dubai swaps, or the exchange-of-futures-for-swaps, was pegged by a broker Friday at $3.26 a barrel, from $2.89 last week, too wide to allow any West-to-East arbitrage.
This means refiners won’t be able to pick up long-haul shipments from West Africa, the Mediterranean, the Caspian area or the North Sea in place of Middle East cargoes.
Meanwhile in Asia, Malaysia’s state-owned Petroliam Nasional Bhd (Petronas) will be readying its Tapis price adjustment factor for September.
Brunei Shell Petroleum, setting August OSPs retroactively, will probably follow Petronas in cutting outright prices by $18.60 a barrel, traders said. – Dow Jones Newswires |
