The crude oil market in Asia was trading lower at the start of the week of Jan. 18, as an uptick in COVID-19 cases in China threatened to derail crude’s demand recovery, while the spread of mutated strains of the coronavirus also weighed on market sentiment.
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March ICE Brent crude futures was pegged at $54.61/b at 0200 GMT Jan. 18, down $1.12/b from the 4.30pm Asian close Jan. 15.
MIDDLE EAST CRUDE
** The week ahead is likely to see trade for March-loading barrels pick up pace post-issuance of official selling prices, Saudi Aramco’s allocations and refiners completing running their linear programming models.
** Market will be eying Asian purchase activity through issuance of tenders and spot negotiations for crude from India, China, Japan and other key regional economies in the week ahead.
** Amid low demand from Asian buyers on the back of seasonal turnarounds in North Asia, differentials for Middle East grades have fallen into discounts on the spot market.
** Indian Oil Corp. was reported to have purchased around 5 million barrels of crude, mostly consisting of West African crude, via a tender that closed last week. Exact details of the tender outcome are awaited.
** Dubai cash/futures (M1/M3) averaged 48 cents/b in the week ended Jan. 15, against 47 cents/b in the week ended Jan. 8.
** Intermonth spreads narrowed during mid-morning trade Jan. 18, with February-March pegged at 7 cents/b compared with 8 cents/b at the Asia close on Jan. 15.
** March Brent/Dubai Exchange of Futures for Swaps was pegged at 72 cents/b mid-morning Jan. 18, down 2 cents from the 74 cents/b at the Asia close on Jan. 15.
ASIA PACIFIC CRUDE
** In the week of Jan. 18, the market will see the results of several spot tenders across the sweet crude complex, especially from Vietnam. A longer program for March-loading cargoes in Vietnam and continued availability of arbitrage cargoes from West Africa may place downward pressure on prices, but market participants expect prices to receive some support from an uptick in the underlying fuel oil product cracks.
** Market participants are eying fresh trades for March-loading cargoes of North West Shelf condensate. Despite a longer loading program than last month, premiums are expected to rise over Dated Brent plus $1/b amid rising naphtha cracks and increasing prices of splitter feedstock substitute, heavy full-range naphtha.
** As activity picks up pace in the market, trades may be heard for light Australian grades such as Cossack and Kutubu Light, Malaysian crude such as Labuan and Kimanis, as well as heavy Australian crude such as Vincent, which could provide fresh cues on spot market differentials.
** The market awaits the outcome of Indian OVL’s third tender of the month for Far East Russia’s Sokol crude, which will close Jan. 20. Sokol differentials have eased further since the closure of its second tender mid-last week at Dubai plus $1.25/b, which was attributed to poor North Asia demand due to seasonal turnarounds and low run rates.
** In the delivered crude market, sentiment weakened for March-delivered Brazil’s Tupi cargo, which was reported to have traded at ICE Brent plus low-mid $2s/b, DES Qingdao, lower than the ICE Brent plus mid-$2s/b during the previous week.
** Market participants are also awaiting the outcome of Taiwanese Formosa’s tender to procure March-loading barrels. US’ WTI Midland was one of the options the refiner was considering.
** Movements in oil prices will be tethered to news flow surrounding the coronavirus pandemic, especially after Chinese authorities instituted lockdowns in several cities in order to stem a resurgence of COVID-19 infections.
** Market analysts, however, retain a bullish outlook for oil, as they note that oil prices remain supported by Saudi Arabia’s 1 million b/d oil production cut and by vaccine roll-outs.
** Analysts also said that a $1.9 trillion stimulus plan proposed by US President-elect Joe Biden may expedite US economic recovery and provide a boost to oil demand, but some remained doubtful over whether the plan would obtain the bipartisan support necessary for it to be passed into legislation.
** Crude futures had looked set to continue their impressive rally in the week ended Jan. 15, before news of lockdowns in Chinese cities and a strengthening US dollar stymied their rise.
** The March contract for Brent had ended the week 1.59% lower at $55.10/b, whereas the February contract for NYMEX light sweet crude, buoyed by stimulus hopes, ticked up 0.23% to $52.36/b.