Asia crude - Key market indicators this week

Singapore — The crude oil market in Asia was trading higher at the start of the week of Jan. 11 as market sentiment continued to be buoyed by Saudi Arabia's decision to cut production by 1 million b/d and amid expectations of additional stimulus measures following a Democrat victory in the Georgia Senate runoff elections.

March ICE Brent crude futures was pegged at $55.65/b at 0200 GMT Jan. 11, up 89 cents/b from the Asian close on Jan. 8.

MIDDLE EAST CRUDE

**The week ahead will see trade for March-loading cargoes commence post-issuance of official selling prices by Aramco, ADNOC, SOMO and KPC. Only Qatar has yet to announce OSPs.

**Post the OPEC+ meet, Saudi Arabia pledged to curb output by 1 million barrels/d each for February and March, easing concerns of an oil glut as demand remains weak with the resurgence in COVID-19 cases.

**Saudi Aramco hiked OSPs for February by 20-70 cents/b across all Asian bound crude grades. While traders hoped for a rollover of prices, the hike was accepted across the market, but widely considered to be on the high side.

**Other key producers, namely ADNOC, SOMO and KPC, had also issued prices for their respective crude grades. ADNOC raised prices by 25-30 cents/b, while SOMO raised prices for its Asian bound crude by 20-70 cents/b. KPC raised prices for its Asian bound crude in February by 20-50 cents/b from January.

**Buying activity from Asia is expected to kick off this week, however, traders fear that maintenance season, coupled with growing COVID-19 cases in China, Japan and South Korea may dampen demand.

**IOC issued two purchase tenders last week for West African and Middle Eastern crude for end February to early March loading. They were reported to have bought Nigerian Akpo crude and Western Canadian select crude. This once again brings focus on the threat of arbitrage barrels from the West being preferred by Asian refiners.

**The Dubai cash-futures (M1-M3) averaged 47 cents/b in the week ended Jan. 8, against 29 cents/b in the week ended Dec. 31, 2020.

**Intermonth spreads widened during mid-morning trade Jan. 11 with the February-March pegged at 31 cents/b, compared with 24 cents/b at the Asia close on Jan. 8.

**March Brent-Dubai Exchange of Futures for Swaps was pegged at 95 cents/b mid-morning Jan. 11, up 14 cents/b from the 81 cents/b at the Asia close on Jan. 8.

ASIA PACIFIC CRUDE

**In the condensates market, Qatar's tender for March-loading DFC will close on Jan. 13 and remain valid until the next day. There are expectations that the grade could trade higher this month on the back of an improvement in sentiment following Saudi Arabia's supply cuts, an uptick in naphtha cracks as well as higher prices for alternative heavy full range naphtha feedstock.

**With the closure of India's OVL tender for Far East Russian Sokol crude on Jan. 8, market participants expect the outcome of the tender to provide fresh cues on North Asian refiners' demand for the middle distillate-rich crude.

**The week of Jan. 11 will see the emergence of the March loading program for Asia Pacific crude market and fresh spot tenders across the sweet crude complex, especially from Vietnam.

**The loading programs could give market participants a clearer picture of supply availability in March amid diverging trends in the underlying product markets with middle distillate cracks trending lower, while light distillate cracks and marine fuel 0.5% cracks showing resilience going into January.

DELIVERED CRUDE

**In the delivered crude market, offers for Brazil's Tupi crude were heard rising to a premium in the high-$2s/b against ICE Brent as sentiment improved following Saudi Arabia's decision to cut production. Earlier last week, a cargo was heard traded at ICE Brent plus $2.50/b, DES Qingdao.

CRUDE FUTURES

**Bullish sentiment is expected to persist this week, but market analysts remain cautious, as the market has, over the past few weeks, priced in an amelioration of the coronavirus situation on account of the roll out of vaccines, and any negative news on the pandemic front may force a downward correction in oil prices.

**Crude futures had jumped up in the week ended Jan. 8, with the March contract for Brent and the February contract for NYMEX light sweet crude rising 8.09% and 7.67% to settle at $55.99/b and $52.24/b, respectively.

**The surge in prices last week was fueled by a confluence of bullish factors, the most important of which was Saudi Arabia announcing at the end of the Jan. 5 OPEC+ meeting that it will cut production by 1 million b/d in the February-March period. This will more than compensate for the combined 75,000 b/d increase granted to Russia and Kazakhstan in February and March during the meeting.