Asia’s spot crude market peaks on possible oil reserve release

Asia’s spot crude market peaks on possible oil reserve release

SINGAPORE (Reuters): Asia’s spot crude market has peaked after touching near two-year highs this week, as a possible release of oil reserves from top consumers globally dented sentiment and weighed on prices, trade sources said on Thursday.

The administration of U.S. President Joe Biden asked big oil buyers like China, India and Japan to consider releasing crude stockpiles. China said it is working on a release of its crude reserves, while Japan and South Korea are reviewing the U.S. request.

Traders say the possible unprecedented coordinated oil release by top consumers has chilled buying interest in recent sessions, resulting in key physical spot price premiums weakening for crudes sold to Asian buyers out of the Middle East and Russia.

In addition, Brent’s premium to Dubai quotes has also cooled from eight-year highs hit earlier this month, and could make crude from the Atlantic Basin more affordable to Asian buyers again.

“The pressure valve has been released for Asia with EFS coming off,” a trader with an Asian refiner said, referring to the Brent-Dubai spread, also known as Exchange for Swaps (EFS).

“There was previously no alternative supplies as the arbitrage was closed even to India.”

Buyers in top importer China have bought some U.S. Mars crude cargoes recently, as premiums for the Gulf coast sour grade are 50 cents to $1 a barrel below Oman crude for February arrival, traders said, although volumes were limited.

The drop in ESPO premiums was mainly sparked by poor demand from Chinese independent refiners after local authorities stepped up tax investigations, traders said.

“I think it spooked the Shandong refineries, so all in all it’s translating to a slowdown in the market,” the second trader said.

Asia’s refining margins have also slipped from two-year highs as profits for producing distillates such as naphtha, gasoline and gasoil corrected after making sharp gains in past two months. Asia refining margins slip from 2-year highs,

“The original strength in the market was pumped up because of Europe’s (power crunch) situation,” the first trader said.

“Everyone was getting wild on LNG, but then renewed COVID-19 fears over there seem to be weighing a bit now.”

“The rug has been taken out from underneath everyone. Most buyers should be covered by now, and China is nowhere to be seen,” he added.

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