Premiums for Southeast Asian crudes to slip amid demand-supply imbalance, wide EFS

Singapore — Spot cash premiums for June-loading barrels of Malaysian and Vietnamese crude oil have eased on the month amid demand concerns as COVID-19 cases spike in Asia, ample availability of arbitrage cargoes, and a wide Brent/Dubai EFS, market participants said.

COVID-19 resurgences in key demand centers in Asia, such as Thailand and India, raised concerns on demand for regional crudes weakening, they said.

"There is a potential for further lockdowns in Thailand and India due to COVID-19. Thailand is one of the biggest buyers of regional crude, if the movement restrictions increase, the demand for regional crude will not be good," said a source with a trading house.

Spikes in COVID-19 cases in Asia have also raised concerns about weakening product cracks for middle distillates, further eroding sentiment for the middle-distillate rich regional crude complex.

"Malaysian crude oil will be in pressure because gasoil is under pressure amid Indian COVID-19 spike," said another Singapore-based trader.

Premiums ease for Malaysian, Vietnamese crudes

So far for June-loading Malaysian crude grades, oil and gas company ConocoPhillips was heard to have awarded a tender for 600,000 barrels of Malaysia's Kimanis crude for June 3-7 loading to a trading house at a premium of around $1/b to Platts Dated Brent, FOB.

In comparison, ConocoPhillips was heard to have sold a similarly sized cargo loading over April 28-May 2 to trading house at Dated Brent plus around $2.50/b, FOB, last month.

While the rest of the June-loading program for Malaysian grades is yet to change hands, many expect the weaker premium level to be sustained through the June-loading trading cycle.

A similar trend has emerged for Vietnamese crude as well with cash premiums heard easing seven-month highs seen for May-loading barrels in March, S&P Global Platts data showed.

Vietnam's PV Oil most recently awarded its tender for 400,000-barrels of Dai Hung crude, loading over June 16-22, at a premium of around $1.75/b to Platts Dated Brent crude assessments, FOB, to Vietnam's domestic refinery, Binh Son Refining and Petrochemical, or BSR.

The premiums have eased from the mid-$2s/b premiums for a similar-sized cargo of the crude for May 1-7 loading which PV Oil awarded in its previous tender last month, Platts data showed.

Market participants were surprised by the weakness in the traded level, especially since BSR is known to typically purchase Vietnamese crudes at higher than market levels.

"I think the demand [is] just not there... usually BSR would pay up high but seeing the level I guess people are not buying," said a crude oil trader based in South East Asia. (moved up, as these comments are specifically for Dai Hung crude)

PV Oil also awarded its tender for 300,000-barrels of Chim Sao crude loading over June 26-30 at a premium of around $2.25/b to Platts Dated Brent crude assessments, FOB, to Australia's Ampol.

PV Oil last sold a 300,000-barrel cargo of Chim Sao crude for loading over May 2-6 to BSR at a premium of high $2s/b to Platts Dated Brent crude assessments, FOB.

Arbitrage from West, wide EFS

Alongside demand concerns, traders are also looking at excess supply in the West that may make its way to Asia to compete with regional crude grades.

"Vietnamese crudes have traded lower this month as there is too much competition, with a lot of unsold medium and light grades in the Atlantic basin. Even with the timing difference from the [Atlantic] basin to Asia, they have the potential to squeeze into the arrival window for June-loading regional cargoes," said another crude oil trader based in Singapore.

Softening cash differential levels amid the demand-supply imbalance are further exacerbated by a wide Brent/Dubai Exchange for Futures Swaps, which is making Dated Brent-linked regional crude grades less economically attractive for buyers.

The Brent/Dubai EFS averaged $3.03/b April to date, higher than an average of $2.60/b over March, according to data from Platts.

"The Brent/Dubai spread is doing its work in pushing cash differentials down," said the trader. "PG grade levels are more competitive, so those [end-users] who can swing between PG and regional grades will opt for PG, resulting in more supply for those [end-users] who can only take regional grades."

The market continues to await results of outstanding tenders to gain further clarity on price trends for sweet crudes this month, including PV Oil's spot tenders for Ruby, heavy Bach Ho and Sao Vang and Dai Nguyet (SV-DN) crude, as well as Brunei Energy Services & Trading's spot tender for Kimanis crude.

"Based on the PV Oil tender results so far, directionally it looks like Ruby will trade weaker as well, around $1-$1.50/b premium to Dated Brent, as compared to high $2s/b level last month," said the source from the trading house.