Australia's crude oil exports draw strength from improving Asian demand outlook

Australia's crude oil exports are showing strong signs of revival as feedstock buyers in Asia snap up plentiful cargoes in the hope that the recovery in oil products demand, seen in many regional economies after a long period of feeble consumption, will be sustained.

The trend of rising exports was seen in April data that showed a sharp 28% month-on-month jump in the country's crude exports for the month, with analysts and traders expecting sentiment for forward-month loading cargoes to remain supported on the back of recovering fuel cracks.

Asia's oil demand in the first quarter grew by 1.2 million b/d from the previous quarter, but in Q2, it fell by nearly 1 million b/d from Q1 levels. S&P Global Platts Analytics expects oil demand in Asia to grow by about 1.9 million b/d in Q3, compared with Q2 levels.

"After a decline in Q2, Asia's quarter-to-quarter oil demand growth is poised to reach 1.9 million b/d in Q3 as a result of a rebound in India, continuous recovery in the rest of Asia and summer seasonal support. With regional crude oil production largely flat, the growth of demand will be matched largely by imported crudes to be used in refineries around Asia," said Kang Wu, head of global macro demand and Asia Analytics at Platts.

Preliminary data from Australia's Department of the Environment and Energy showed the country exported 9.35 million barrels in April, up 8% year on year. It was the largest monthly export since September 2020, when 10.04 million barrels were shipped.

Singapore was the leading destination for Australia's crude cargoes in April receiving 3.38 million barrels, up a marginal 1% from March levels of 3.34 million barrels and surging 76.1% from the April 2020 level of 1.92 million barrels.

In the first four months of 2021, Australia exported 9.26 million barrels to Singapore, compared with 8.01 million barrels for the same period last year, the data showed.

Australian crude exports to Malaysia rose to a 12-month high of 1.47 million barrels, up 165% month on month, the data showed. Crude sales to Thailand and India also saw robust year-on-year growth, rising more than 200% and more than 100%, respectively, the data showed.

Sentiment for forward months robust

Market sources noted some recovery in demand fundamentals in Southeast Asia, amid the rollout of COVID-19 vaccines and lesser arbitrage barrels making inroads from the West.

A narrower Brent/WTI spread also results in lesser cargoes of US crude into Asia, with regional crude grades in Asia being preferred more by refiners, sources said.

The front-month NYMEX WTI vs ICE Brent futures spread was seen at minus $1.57/b at the Asian close on June 30. It was last narrow on Oct. 30, 2020, at minus $1.40/b, Platts data showed.

Sentiment for August-loading barrels remained supported amid recovering fuel oil cracks, even as the market may face some headwinds from an increase in supply, sources said.

Initial talks in the market indicated that there could be one 550,000-barrel cargo of Australia's heavy sweet Vincent crude sold for August loading at a premium of around $9/b to Platts Dated Brent crude assessments, FOB, according to traders.

Second-month marine fuel 0.5% swap crack versus Dubai swap averaged $8.43/b for June, up from $8/b for May, Platts data showed.

Although there was no spot availability of Pyrenees crude barrels for August loading, Australia's Santos was heard to be offering one 350,000-barrel cargo of heavy sweet Van Gogh crude for August 11-15 loading, according to sources.

Condensate market outlook

Australia's North West Shelf condensate traded at a premium to Platts Dated Brent for August loading barrels amid recovering naphtha cracks.

The second-month naphtha swap crack versus the Dubai crude swap has averaged minus 90 cents/b in June, up from an average of minus $1.21/b in May, Platts data showed.

Oil major BHP was heard to have sold one 650,000-barrel cargo of NWS to Glencore at a premium of around 50 cents/b to Platts Dated Brent assessments, FOB, according to traders.

Cash premiums for Australia's Ichthys condensates were also seen higher on the month, with Total and Inpex each selling an August-loading 650,000-barrel cargo of Ichthys condensate to PTT and Exxon, respectively, at a premium of $1.10/b-$1.20/b to Platts Dated Brent crude assessments on a FOB net-back basis, sources said, compared with a premium of around 65 cents/b-70 cents/b, FOB, for July-loading barrels.

Australia's crude oil production in April declined 34% year on year and 26% month on month to 3.05 million barrels. Condensate production totaled 6.98 million barrels, up 1% on the year but down 7% from March, the data showed.

LPG production in April hit a six-month high of 3.31 million barrels, up 2% on the year and 15% higher from March levels, according to the data.