Asia crude - Key market indicators this week

Singapore — Spot trading activity in the Middle East crude market for September-loading cargoes is expected to switch to high gear this week amid sluggish Chinese demand that will continue to weigh on differentials.

Overall, sentiment is likely to remain bearish due to demand destruction caused by the COVID-19 pandemic.

Traders pointed to weaker spot differentials commanded by China-centric grades such as Oman and ESPO in recent days as evidence of worsening demand at the world's largest importer of waterborne crude.

MIDDLE EAST CRUDE

**Asian refiners are expected to wrap up purchases of September-loading Middle East crude cargoes, following the closing of key tenders last week.

**Benchmark Dubai premium to futures has weakened in recent days owing to tepid demand recovery from refineries in Asia.

**The Dubai cash/futures spread, a key indicator for the sour crude market, was assessed at 67 cents/b on July 17. This has narrowed from an average of $1.14/b during the first half of July, Platts data showed.

**Reflecting weakening sentiment, the prompt intermonth spreads in Dubai futures have slipped into a contango recently. The August/September Dubai futures spread was assessed at minus 6 cents/b and September/October assessed at minus 13 cents/b for the July 17 Asia close. The timespreads continue to hover in contango in mid-morning trade on Asia 20.

ASIA PACIFIC CRUDE

** The strength seen in the Asian regional crude market earlier in July has started to wane and is expected to be reflected in spot trades in the week beginning July 20, traders said.

** Market participants will be looking out for tender results of Malaysian crudes and Vietnamese crudes expected to conclude this week, traders said.

** Market participants will also be waiting for spot trades of September-loading Australian North West Shelf condensate, with some traders expecting price differentials to flip to small premiums.

** Spot trades of heavier sweet grades, including August-loading Nile and Dar Blend as well as September-loading Indonesia Duri and Australian Vincent crude, are also likely to come under focus this week.

DELIVERED CRUDES

**In the delivered crude market, traders expect price differentials for October delivered Brazilian Lula crude to weaken amid bearish demand conditions in China. Latest spot trades for October delivery Lula cargoes fell by around $2/b to December ICE Brent Futures, DES Qingdao basis, traders said.

**Market participants expect trading activity for the US WTI Midland crude to be quiet in the week beginning July 20 especially from China as demand for lighter crude grades are weak, trader said.

CRUDE FUTURES

**Analysts say prices may be rangebound due to an uncertain short term demand outlook as COVID-19 cases surges globally

**The prompt intermonth timespread for Brent swaps remained firmly in contango, averaging minus 22 cents/b in the week ending July 17, wider than the minus 17 cents/b the week before

**OPEC+ coalition will taper production cuts to 7.7 million b/d starting from August, but extra compensation cuts of roughly 840,000 b/d from previously non-compliant countries indicates only 1.1 million b/d of returning production, instead of the 2 million b/d anticipated