Regional sweet crude sentiment buoyed despite longer April loading program

Cash premiums for April-loading barrels of regional sweet crudes are likely to maintain an upbeat momentum on the month amid robust middle distillate cracks, despite a longer loading program seen for Malaysian crude, traders told S&P Global Platts Feb. 16.

Traders' sentiment were largely positive, pivoting towards another bullish trading cycle for April loading barrels as pockets of tender results are expected to emerge later in the week ending Feb. 19.

Following the release of Malaysia's Kimanis loading program, Brunei Energy has offered its April loading Kimanis crude via a tender which closes on Feb. 16 and valid till Feb. 21, traders said.

"I think [Kimanis crude] would be supported, similar level as last month. Longer Kimanis program but cracks are stronger," said a Malaysia-based crude oil trader.

There are eight 600,000-barrel cargoes of Kimanis crude available in the April-loading program, including a cross month loading cargo, up from six for March-loading, traders said.

A closed arbitrage with wider intermonth spreads were also among reasons cited by traders supporting a further uptrend in traded levels for April loading barrels of Malaysian crude.

"Arbitrage is limited due to strong spread, I think [that] could offset [the] longer [loading] program," said a regional crude oil trader.

"[Refinery] margins still doing OK, and arbitrage barrels over [to Asia are] also lesser," said a Singapore-based crude oil trader.

Last month, Brunei Energy was heard to have sold a cargo of Kimanis to Ampol for March 4-8 loading at a premium of around low $1s/b to March Malaysian crude oil official selling price.

Meanwhile, middle distillate product cracks were seen robust where the second month Singapore gasoil and jet fuel swap crack spreads versus Dubai crude rose on the month to average at $17.12/b and $14.44/b, respectively in February to date, up from $15.16/b and $12.84/b in January, Platts data showed.

For Vietnamese crudes, traders also await tender results on PetroVietnam Oil's Chim Sao crude, where the company offered a 300,000-barrel cargo of Chim Sao crude for April 13-17 loading via a tender which closed on Feb. 15 with validity till Feb. 18, traders said.

Last month, PV Oil did not offer Chim Sao for March loading, according to traders.

"Vietnamese grades likely to maintain upbeat momentum, overall regional supply is tight despite longer Kimanis program. Without arbitrage barrels coming in, no surprise sellers for regional grades may ask for better premiums," he said.

Tight Western supply lifts Asian middle distillates complex

While reduced exports of middle distillates from China amid tight oil product export quotas continue to provide baseline level of support to the middle distillate complex in Asia, supply jitters in the West over the last few weeks lifted the Asian middle distillate market even further, according to market sources.

Oil product outflows from Russia, which is a key supplier of diesel for Europe, fell in recent weeks, weighed down by rough weather at the country's Baltic terminals, squeezing supply and propping up the middle distillate complex in the West.

Furthermore, geopolitical tensions between Russia and the US over the last few weeks kept the market on edge amid lingering threat of sanctions on Russian exports that could further exacerbate supply tightness.

"Seems to be mainly Western spreads that are the main driver...loads of geopolitical risk too," said a source with a Western trading house.

While fundamentals in Asia remain steady, the Asian middle distillate complex has responded to the pull for cargoes from the West by pricing strongly regionally to stem the flow of East-West arbitrage cargoes, sources noted.

Thin import volumes from East of Suez producers in January and early February to Europe have left stocks of diesel and gasoil in the Northwest European hub of Amsterdam-Rotterdam-Antwerp sitting just above seven-year lows at around 1.598 million mt in the week to Feb. 9, according to Insights Global data.

With snug supplies in the West having a knock-on effect in the East, the strengthening of the Asian middle distillate complex has outpaced that of crude oil, resulting in product cracks firming up and making the production of middle distillates by refineries increasingly lucrative.

"I'm hearing some refiners are looking at postponing [their] turnaround to [a] later date ... [middle distillates] cracks are good, they don't want to miss out," a regional market source said.

A second trade source agreed, adding that the lean supplies of gasoil and jet fuel have elevated spot prices. "We saw high prices done for some [spot] trades last week ... this week is even higher," the trader said.