The Middle East’s top oil exporter, Saudi Aramco, was heard to have issued full July term crude volumes to some Asian buyers though refiners in China were heard to have nominated lesser volumes amid weak demand and expectations of an increase in cheaper Russian crude flows, sources told S&P Global Commodity Insights June 10.
Full allocations from Saudi Aramco ties in with the producer along with other OPEC+ alliance members winding down production cuts while also agreeing to increase output over July and August, traders said.
However, while most buyers sought full term volumes in the face of healthy demand, Chinese buyers were heard to have nominated lesser crude volumes this time, a trader in Singapore said.
“Chinese side cut some [nominations],” the trader in Singapore said.
Refinery sources attributed the lower nominations for July term barrels to the weak recovery of the Asian giant after multiple outbreaks of COVID-19 over the past several months, which blunted oil and product consumption.
“Though they [China] increase run rate a bit, I think demand is not strong,” another trader in Singapore said.
However, market participants also suggested a dip in Chinese crude demand as cheaper Russian crude increasingly becomes an enticing option over oil from other regions.
“More Russian, Iranian and Venezuelan [crude going to China] but NOC [Chinese national oil companies] can’t take Russian [oil] besides ESPO,” a trader with a Southeast Asian refinery said.
Post the sanctions imposed by the EU on Russian oil, apart from India and China, buyers from other countries are increasingly becoming wary of seeking crude from Russia, traders said.
However, over the past weeks, oil flows to China could gradually be inching up, a trader with a North Asian refinery said.
“Russia is trying to push more into China than India [and] they trying to increase pipeline into China,” the trader said.
But despite Russian crude making its way to China, tepid demand still is the primary reason for the country to whittle down its term appetite for July.
“Russian is small size cargo, the whole volume cannot compare with PG [Middle East]. I feel mainly because of weak demand [China nominated less],” another trader with a North Asian refinery said. “Heard China took even less than last month.”
Demand steady in Asia
Apart from China, oil and product demand among other Asian buyers continued to grow, with spot market activity beginning early this month as refiners gear up to buy, sources said.
“People will be buying immediately. No point [in waiting],” the first trader with the North Asian refinery said.
Indian spot tenders have seen some Middle East and West African grades loading in August move East, while Japanese and South Korean refiners have also started making purchases, traders said.
“Three to four months ago, Sakhalin and Sokol trades happened [but] these are being replaced with Murban. They [Japan and Korea] are front loading all those cargoes [which] makes sense,” a trader with a South Asian refinery said.
Though Saudi hiked OSPs higher than what most market participants had expected, some buyers might opt for some incremental barrels as well, sources said.
“Yes [we took incremental crude] but marginally,” a refiner in Southeast Asia said.
Earlier this month, Aramco hiked its July OSPs for crude bound to Asia by $1.80-$2.75/b, surpassing expectations of an increase matching the rise in the Dubai structure of around $1.50/b, sources said.
Strong refining margins were ample incentive for buyers to brush aside higher OSPs and lift more crude, especially light sour grades, a trader with a Japanese trading house said.
The gasoline crack spread to Dubai crude was averaging $28.92/b in June so far, compared with $27.83/b last month, S&P Global data showed.
Crack spreads for gasoil were even stronger, averaging $49.16/b in June till date compared with $36.52/b last month, according to S&P Global data.
“Lighter grades look cheap in terms of OSP [so] lighter side thinking buyers may ask for incrementals,” the trader with the Japanese trading house said.