Tight supply boosts May-loading regional sweet crude sentiment

Regional sweet crude cash premiums for May-loading barrels are expected to rise month on month in March because of tight regional supply, strong demand, strengthening middle distillate cracks and a steep backwardation, traders told S&P Global Commodity Insights March 15.

Trade sources, including some buyers, were bullish about the May trading cycle, with a plethora of tender results expected to emerge later in the week started March 14.

"Sentiment for regional grades seems to be stronger this month, arbitrage barrels look even more expensive with the current structure," a regional crude oil trader said.

All eyes were on Brunei Energy's 600,000-barrel Kimanis crude sell tender that loads from the Sabah Oil and Gasoil Terminal over May 2-6. The tender closes March 17, with next day validity. Brunei Energy last sold a similar-sized cargo loading April 1-5 to Ampol at a premium of about 70 cents/b to April Malaysian crude oil official selling price.

Tight supply was likely to buoy the sentiment amid a backwardated market structure, with just six 600,000-barrel cargoes of Malaysia's flagship Kimanis crude available for May-loading, down from eight in February, traders said.

The ongoing Russia-Ukraine war has prompted Northeast Asian refineries to seek alternatives, such as US or Malaysian light sweet crudes. Traders said that Japanese refineries could strive for Malaysia's light sweet Kimanis to replace feedstock, which typically came from Russia.

Traders awaited tender results of May-loading crudes offered by PetroVietnam Oil that include the Ruby, Thang Long and Sao Vang and Dai Nguyet Vietnamese crude grades.

PV Oil likely sold its 300,000-barrel cargo of Chim Sao crude to domestic Binh Son Refining and Petrochemical at a higher premium of $8s/b to Dated Brent, FOB, amid an upbeat sentiment, according to market sources.

PV Oil recently sold a similar-sized cargo of Chim Sao for loading over April 13-17 at a premium of about $7.50/b to Dated Brent, FOB, traders said.

Gasoil, jet fuel cracks strengthen

The Asian middle distillate complex has been volatile because of supply uncertainty in the West, with the reliability of Russian oil product exports in question following economic sanctions on Russia due to its military invasion of Ukraine, sources said.

The Platts FOB Singapore gasoil crack against front month cash Dubai hit an over 13-year high of $44.20/b March 9, the highest level seen since May 27, 2008, when it was recorded at $44.47/b, S&P Global data showed.

The crack has since weakened in tandem with the European gasoil complex, falling 52.83% in a span of three trading sessions to $20.85/b March 14. Robust demand in the Asia-Pacific gasoil market is expected to place a floor under the crack, according to traders.

Gasoil demand in key importing centers in the East has been recovering, as most countries relax COVID-19-led movement restrictions and reopen borders, boosting buying appetite for middle distillates in the transportation and industrial sectors.

Gasoil consumption is also expected to see a seasonal increase in several countries ahead of the summer season and Ramadan. A minimum second-quarter transportation fuel import mandate in Vietnam is further strengthening demand cues from the country.

"Indonesian side also getting more aggressive to secure barrels, especially [with] Ramadan season coming," said a Singapore-based gasoil trader.

Industry sources said refiners were likely to maximize gasoil and keep a tight leash on jet fuel/kerosene output to capture the higher margins.

"There's very little jet [fuel] ... we see some blending of DPK [dual purpose kerosene] into gasoil pool but market is tight. Not much room for that either," said a regional trader.

The FOB Singapore front-month regrade swap -- the spread jet fuel commands over gasoil -- averaged minus $7.90/b in the month through March 14, widening from minus $3.91/b in February, S&P Global data showed.

Participants said that the Asian jet fuel/kerosene market was likely to be supported by demand optimism from the downstream aviation sector as borders reopen, and heating requirements from the Northern Hemisphere.

The Platts FOB Singapore jet fuel/kerosene physical crack against front month cash Dubai averaged $18.09/b in the month through March 14, up from $13.84/b in February, according to S&P Global data.