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Asia oil demand seen shifting back to Mideast, Russia in Q4 after Brent rise

Asia’s spot market demand for Middle East and Russian crude oil could rise this month as a regional price shift pares shipments from the Atlantic Basin and the United States back from record highs, refining industry insiders and watchers said on Friday.

Dubai and Oman benchmarks for Middle East crude have touched multi-month highs on expectations of stronger demand and falling arbitrage supplies. Higher demand could soak up excess oil in the market, supporting premiums for Middle East and Russian oil when trade for October-loading cargoes kicks off next week, industry insiders said.

The average spread between dated Brent to Middle East marker Dubai widened nearly $1 a barrel in July, as strong demand from refiners in Asia and Europe and North Sea oilfield maintenance tightened supplies. DUB-EFS-1M

“Refinery crude demand remains strong, notably in Europe on the back of healthy margins driven by light products,” said Harry Tchillingurian, head of commodity strategy at BNP Paribas.

Crude produced in Angola, the North Sea and the Mediterranean have also become more expensive, making fewer arbitrage supplies economical to Asian buyers, a Singapore-based trader said.

“Hence, more Dubai-related crude will be looked at than before,” he said.

For example, Kazakhstan’s CPC Blend crude will land in North Asia in November at $1.50-$2 a barrel above dated Brent – expensive compared with Saudi’s Arab Extra Light, a trader with a western firm said.

Meanwhile one North Asian refiner said he was likely to lift more sour crude directly from Middle East suppliers in October as sweet crude supplies have tightened. “Sweet crude for October delivery are sold out,” he said.

BRENT-DUBAI MAY NARROW AGAIN

In London, an oil industry executive said traders tend to look at the 100-day moving average for North Sea arbitrage. If Brent-Dubai trades above $1 on a sustained basis, that might discourage flows, he said, speaking on condition of anonymity because he wasn’t authorised to speak to media, like other officials interviewed by Reuters for this story.

Still, BNP Paribas’ Tchillingurian expect Brent’s premium to Dubai to stay under $1.50 a barrel with OPEC cuts supporting the Middle East benchmark, while Brent eases with higher output from North Sea and Libya.

This would allow arbitrage flow from the Atlantic Basin to Asia to continue, notably in heavier oil from Angola due to cuts by members of the Organization of Petroleum Exporting Countries, he said.

“We are not expecting Asian appetite for arbitraged crude to fall off in November as typically refinery runs rebound after planned refinery turnarounds in September-October.”

Low freight rates also helped while U.S. crude shipments could continue making their way to Asia as refiners in the United States will carry out seasonal maintenance in October-November, freeing up crude supplies for exports, traders said.

Chinese demand is also unlikely to relent soon as Beijing has granted more quotas to independent refiners known as ‘teapots’, analysts said.

“Chinese teapots have got their quotas and they are buying at these price levels,” said Adi Imsirovic, a member of the Surrey University Energy Economics Centre. “Margins are great and there is little not to like in the market at the moment.”
Source: Reuters

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