Omicron threatens Asian oil demand just as prices favor Atlantic crude

An aerial view shows an oil plant of Idemitsu Kosan Co. in Ichihara, east of Tokyo, Japan November 12, 2021, in this photo taken by Kyodo. Mandatory Credit Kyodo/via REUTERS

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LONDON/SINGAPORE, Dec 7 (Reuters) – Recent shifts in the relative price of different grades of crude have given oil exporters in the vast Atlantic Ocean basin the best chance in months to sell to the highest-consuming region. from Asia, but sales were slow due to COVID -19 fears to dampen demand.

The Omicron variant of the coronavirus has dampened oil consumption in Asia, just as American and West African sellers have pinned their hopes on the changing market structure providing an easier path east than competing oil from the Middle East.

Global benchmarks Brent and West Texas Intermediate took a hit last week as tight supplies eased with U.S. Strategic Petroleum Reserve (SPR) sales and a move by the Organization of the Petroleum Exporting Countries and their allies to increase production. Read more

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Brent crude’s premium to Dubai quotes fell to $2.56 a barrel last week, the lowest since March, making exporting Atlantic Basin crude oil more attractive to Asian buyers, traders say and data from Refinitiv.

Brent’s premium to Dubai quotes falls to lowest since March, making Atlantic Basin grades such as Girassol more competitive in Asia

Sales of Nigerian and Angolan oil to India increased, alongside sales of US WTI Midland crude to East Asia.

Angolan Girassol crude and Nigerian Qua Iboe were offered at robust premiums of $1.60 and $1.40 above dated Brent per barrel respectively on a free on board basis – still cheap compared to qualities light from the Middle East.

“We have seen an arbitrage window open, and demand from India and some markets further east has been encouraging in recent weeks, which has kept offers high,” he said. a West African crude oil seller.

“Trading has, however, become calmer in recent days. There is still a lot of uncertainty as to how/if the new lockdowns will affect demand in the new year.”

With the refinery maintenance season scheduled to start in March and refining margins having fallen sharply recently due to Omicron fears, Asia’s appetite may not be as robust as before. Read more

Traders said Chinese buyers would not be easily tempted by more affordable barrels, with independent refiners allotted slimmer import quotas this year and state-owned enterprises already well supplied.

Ongoing tax investigations in Shandong province, where most independents are based, have also dampened appetite for Brazilian and African oil from the world’s biggest importer. Read more

Beijing is also expected to hold a second auction of SPR crude from its storage east of Zhoushan. Read more

Bids for grades like Congo’s Djeno hovered around $2 a barrel above March ICE Brent for delivery in China, down from peaks of around $3 a barrel in premiums last month, a said a buyer from East Asia.

“We’ve mostly done our shopping for the year. Bids are just too high and the market doesn’t justify Atlantic Basin crude being this expensive now with the pandemic returning,” said a second buyer.

While the U.S. SPR release initially weakened values ​​for sour Atlantic Basin grades such as Mars crude and allowed some shipments to be sold in Asia, the window is now only “marginally open”, a trader says. based in Singapore.

The March spot discount hit its highest level in more than two months after WTI’s discount to Brent widened, boosting US demand for domestic crude.

“It used to be cheap but now it’s not, and there hasn’t been much trade, so I don’t know if any (cargoes) have been placed,” another trader said.

Spot differentials for U.S. March crude hit their highest level in more than 2 months after the WTI-Brent spread narrowed, boosting U.S. demand for domestic grades
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Reporting by Florence Tan in Singapore and Noah Browning in London; Additional reporting by Arathy Somasekhar in Bengaluru; Editing by Jan Harvey

Our standards: The Thomson Reuters Trust Principles.

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Felix J. Dixon