- Swift and bold OPEC+ cuts revive premiums in Asia’s physical oil market.
- Sale of two Russia’s ESPO crude cargoes for July loading at a premium of $2.50-$3 a barrel to the Dubai benchmark.
- Exxon Mobil Corp (NYSE:XOM). for Middle Eastern grades, sold Upper Zakum for July loading at a premium of $1.30-$1.50 a barrel.
- Discount for Qatar’s medium-sour variety Al-Shaheen also narrowed more than 80% month-on-month for shipments.
- Brent oil’s six-month contango narrowed sharply to $2.76 a barrel, compared with $11.34 in late April.
The prices of physical oil barrels sees a boost in Asia as a result of bold output cuts by OPEC and its allies, reports Bloomberg.
Outcome of OPEC+ reducing output
OPEC+ has pledged to cut almost 10 million barrels a day. This caused premiums for a wide-ranging variety of crude from Russia’s ESPO, Abu Dhabi’s Upper Zakum and Qatar’s Al-Shaheen to increase significantly in the Asian spot market.
Supplies of more sulfurous oil from the Middle East that are favored by a majority of Asian refiners should begin to tighten due to the production curbs.
Market rebalancing
- Demand is recovering in major oil consumers China and India, led by a rebound in gasoline and diesel consumption.
- Chinese refiners are seeing profits from turning crude into fuels, though processors across much of the region face negative margins.
- In spite of that, buyers are continuing to scramble for cargoes as Saudi Arabia, Kuwait and the U.A.E. decided to reduce contractual supplies from June.
- The decision to reduce supply is due to their planned curbs to support a market rebalancing.
Panic among refiners
Michal Meidan, director of China Energy Program at Oxford Institute for Energy Studies said, “Refiners might be panicking now in light of additional supply cuts and looking to secure cargoes, especially as prices could start to rise.”
“Purchases seem to be getting ahead of the demand recovery,” potentially testing storage capacity in places like China.
Selling price comparison
According to non-identified traders, in the latest trade of Russia’s ESPO crude, Surgutneftegas PJSC sold two cargoes for July loading at a premium of $2.50-$3 a barrel to the Dubai benchmark. That compares with a discount of $4 or more just last month.
For Middle Eastern grades, Exxon Mobil Corp (NYSE:XOM). sold Upper Zakum for July loading at a premium of $1.30-$1.50 a barrel to the grade’s official selling price, compared with a premium of 20-30 cents last month.
The discount of Qatar’s medium-sour variety Al-Shaheen also narrowed more than 80% month-on-month for shipments that were awarded in its monthly tenders.
Cautious Outlook
Despite pockets of demand emerging, market watchers remain cautious on the outlook due to the potential for a resurgence in coronavirus cases and the return of supplies as prices rise.
Ample crude stockpiles
As for crude inventories, there are also ample stockpiles being housed in onshore tanks and vessels offshore that could hit the market as the economics of storing the crude becomes less attractive.
Brent oil’s six-month contango
Brent oil’s six-month contango — a market structure where future supplies of crude are more expensive than prompt cargoes — narrowed sharply to $2.76 a barrel on Monday, compared with $11.34 in late April.
Recovery of oil demand
Giovanni Staunovo, commodity analyst at UBS Group AG (NYSE:UBS) said, “There are still several unknowns regarding the extent to which oil demand will ultimately recover.”
“While gasoline demand will rise as people go back to work, consumption patterns will likely be different than in pre-Covid days as society adopts a new normal at least until a vaccine is available.”
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Source: Bloomberg
