Asia crude - Key market indicators this week

Singapore — The crude oil market in Asia started off the week of Dec. 7 lower as rising coronavirus cases in the US triggered the reimposition of lockdown measures in Southern California and large parts of the Central Valley Dec. 5, offsetting optimism brought by the OPEC+ production decision in the week ended Dec. 5.

The ICE February Brent crude futures contract was pegged at $49.06/b at 0400 GMT Dec. 7, down 62 cents/b from the Asian close Dec. 4.

MIDDLE EAST CRUDE

** Trading activity for February-loading barrels is expected to pick up in the week started Dec. 6 as the OPEC+ meeting ends and refiners likely to start running their linear programming models after the issuance of most official selling prices in the week.

** Saudi Aramco issued the January OSPs on Dec. 6, raising its Asia-bound OSPs by 40-80 cents/b.

** Market participants surveyed by S&P Global Platts in the week ended Dec. 5 expect Middle East producers to increase their January OSPs by 50-60 cents/b for all grades, in line with an uptick on the Dubai cash/futures spread.

** The OPEC+ meeting ended on Dec. 3, with members agreeing for allowing a gradual easing of production quotas from January 2021 onward. January will see supplies eased by 500,000 b/d, which will be divided up proportionally between partners.

** Market participants will await for the outcome of several tenders from Indian refiners, including HPCL and MRPL.

** The Dubai cash/futures (M1/M3) spread widened to average a premium of 48 cents/b in the week ended Dec. 4 from a premium of 36 cents/b the previous week.

** Intermonth spreads were narrower at noon Dec. 7, with the January/February spread pegged at 15 cents/b compared with 21 cents/b at the Asia close on Dec. 4.

** The February Brent/Dubai Exchange of Futures for Swaps was pegged at $1.08/b at noon Dec. 7, narrowing from the $1.25/b at the Asia close on Dec. 4.

ASIA-PACIFIC REGIONAL CRUDE

** In the condensates market, participants will be looking out for fresh February-loading program for Australia's North West Shelf condensate in the week beginning Dec. 6.

** With light product margins continuing to be under pressure while some January 2021 cargoes remain unplaced as buyers chose to stay on the sidelines, price differentials for February-loading barrels were heard valued at Platts Dated Brent minus 50 cents-$1/b, FOB.

** February-loading program for light crudes, including Cossack and Kutubu Light, are also expected in the week beginning Dec. 6.

** Fresh tenders offering Vietnamese crude for February-loading could be issued by state-owned PV Oil in the week beginning Dec. 6 as expectations are for price differentials to strengthen month on month, supported by an improvement in middle distillate margins and reduced spot availability.

** In the Far East Russian market, market participants will be looking out for the outcome of India ONGC's first sell tender for Sokol crude in December, for loading Feb. 12-18, which closes on Dec. 7.

** The tender result could set the precedence for price differentials of middle distillate-rich crudes in December. ONGC last sold a cross-month Sokol cargo for loading Jan. 28-Feb. 3 via tender at a premium of about $1.60/b to front-month Dubai crude assessments, CFR.

** The Indonesian Crude Price for November loading cargoes is also expected in the week started Dec. 6.

DELIVERED CRUDE

** In the delivered crude market, spot trading activity is expected to pick up in the week started Dec. 6 as fresh offers emerge for March 2021 delivery US WTI Midland cargoes.

** Discussions for March delivery of Brazilian Lula or Tupi crudes have already begun, with valuations heard at about $3/b to ICE May Brent Futures, DES basis. Trade sources are expecting spot demand from Chinese independent refiners to remain healthy for March arrival.

CRUDE FUTURES

** After the OPEC+ production quota issue underpinned most of the oil market movement in the week ended Dec. 5, the trajectory of prices in the week started Dec. 6 will likely be tethered to the market's assessment of the evolving pandemic situation, and to news concerning the US stimulus package, which is expected to support oil demand by reinvigorating the US economic recovery.

** Market analysts have cautioned that the bullishness seen in the markets in the week ended Dec. 5 may wane as the markets digest the implications of the OPEC+ alliance's compromise deal, which involves a 500,000 b/d increase in production quotas in January 2021, and requires monthly meetings to determine if further changes are necessary.

** Analysts said monthly meetings over an issue as contentious as the production quotas may brew volatility in the market.

** Nevertheless, the market's initial reaction to the deal was positive as it alleviated concerns over fractiousness within the alliance and averted a worse-case scenario involving a 2 million b/d increase in quotas.

** On the back of the market relief, the February contract for Brent and the January contract for NYMEX light sweet crude settled 2.07% and 1.60% higher on the week, respectively, in the week to Dec. 4.