Asia crude - Key market indicators this week

Singapore — The crude oil market in Asia started the week of Dec. 21 lower as crude futures fell after closing at nine-month highs Dec. 18 due to the emergence of a highly infectious strain of coronavirus in the UK, which led to fears that tougher lockdown restrictions will be placed to curb its spread.

The ICE Brent February crude contract fell $1.70/b (3.25%) from the Dec. 18 settle to $50.26/b at 11:35 am Singapore time (0335 GMT) on Dec. 21.

MIDDLE EAST CRUDE

** Spot differentials for February-loading Middle East crude may ease further during the week starting Dec. 20, with most regional refiners having already completed the bulk of their crude procurement while plenty of cargoes remain unsold.

** The rally in spot premiums for Middle East cargoes earlier in December has pushed many Asian refiners, especially from China and India, to opt for cheaper arbitrage barrels from the US, West Africa and the Mediterranean.

** India's IOC was heard in the week ended Dec. 19 to have bought 3 million barrels of West African crude and 2 million barrels of Basrah Medium crude for end January-early February loading. Details could not be immediately confirmed. In addition, IOC was also heard to have bought cargo of Western Canadian Select, a possible first for the refiner, but this could not be immediately verified.

** India's MRPL issued another tender for the purchase of one-million barrels of crude for end January-early February delivery. The tender closes Dec. 21 with validity Dec. 22. Details of a previous MRPL tender for 1 million barrels high sulfur crude for early-February delivery were still awaited.

** The Dubai cash/futures (M1/M3) spread averaged 80 cents/b in the week ended Dec. 18, against 73 cents/b in the week ended Dec. 11.

** Intermonth spreads widened during mid-morning trade Dec. 21 with the January/February pegged at 21 cents/b, compared with 18 cents/b at the Asia close on Dec. 18.

** February Brent/Dubai Exchange of Futures for Swaps was pegged at 86 cents/b mid-morning Dec. 21, widening from the 84 cents/b at the Asia close on Dec. 18.

ASIA-PACIFIC REGIONAL CRUDE

** In the condensates market, participants will be looking out for any further trades for February-loading Northwest Shelf condensate. Also, the outcome of Qatar Petroleum's tender offering Deodorized Field Condensate for February-loading, which closed Dec. 15 with next day validity, will be awaited. Market participants had noted that negotiations could still be ongoing as there was a gap between buying and selling ideas.

** In the Malaysian crude oil market, participants will be awaiting for February-loading cargoes to change hands. Valuations for key grades Labuan and Kimanis were heard at Dated Brent plus around $2.50-$2.90/b, FOB with no trades heard as yet at the end of the week Dec. 18.

** The outcome of several tenders including PV Oil's Thang Long, Dai Hung and Malaysia's Bertam, Bunga Kekwa crude are expected the week beginning Dec. 21. The market expects prices to move slightly higher from the last month although general sentiment is that peak price for February-loading cargoes has passed.

** February-loading barrels of Indonesia's Banyu Urip could change hands during the week beginning Dec. 21. Valuations for the grade were heard at Dated Brent plus around low-$1s/b to high-$1s/b, FOB.

** In the heavy crude market, participants await the outcome of BHP Billiton's Pyrenees crude tender which closed Dec. 18. It was heard that a February-loading cargo of fellow Australian heavy crude, Vincent, could have changed hands at Dated Brent plus high-$9s, FOB, although this could not be immediately verified.

DELIVERED CRUDE

** The outcome of Thailand's PTT and Taiwan's CPC tenders for sweet crude is expected during the week beginning Dec. 21. Both refiners had purchased US's WTI Midland in their respective buy tenders in November. Current valuations for WTI Midland was heard at a value equivalent to May ICE Brent plus around $1.50/b, DES North Asia.

** Premiums for March-delivery barrels of Brazilian Lula or Tupi crude were heard to have eased from their highs around $2.90/b over May ICE Brent, DES Qingdao earlier in the week ended Dec. 18, with expectations that premiums could ease further as market moves into the holiday season and as Chinese independent refiners move their focus to the Far East Russian and West African crude markets.

CRUDE FUTURES

** News of a highly infectious new strain of the coronavirus is likely to weigh down on sentiment, although an agreement over a $900-billion stimulus bill in the US may support prices during the week.

** US Stimulus hopes were a major driving force behind the rally in oil prices seen in the week ended Dec. 18, during which the February contract for Brent and for NYMEX light sweet crude rose by 4.58% and 5.33%, respectively.

** Vaccine optimism continued in the week ended Dec. 18 after the Pfizer-BioNTech vaccine started distribution in the US, and this optimism could spill into the market this week as the Moderna vaccine received its Emergency Use Authorization from the US Food and Drug Administration late on Dec. 18.

**Some market analysts, however, believe that with much of the vaccine optimism already priced in, news of further progress in the approval and distribution of vaccines may offer diminishing returns.