Sweet crude price differentials under pressure in Asian spot market amid surplus oil stocks

Refiners across Northeast and Southeast Asia are limiting their spot crude purchases as they grapple with high oil inventories, while Vietnam has stepped up efforts to sell as much crude as possible amid low domestic refinery runs, putting downward pressure on price differentials of multiple sweet crude grades traded in the Asian market.

Far East Russian crude grades saw their spot premiums tumble to 11-week lows as major customers in China and South Korea were largely reluctant to procure spot crude cargoes due to the spike in crude and oil product stockpiles in recent weeks amid tepid consumer fuel demand.

Light sweet Far East Russian Sokol crude was assessed at a premium of $2.85/b to front month Dubai crude assessments Aug. 19, the lowest the differential has been since $2.55/b on May 11. The spot premium could potentially fall below $2/b in the next few trading cycles, as the grade's major customers in South Korea aim to draw down their current high crude stocks, according to feedstock trading and management sources at two major South Korean refiners.

South Korea's crude stockpiles climbed 7.8% year on year to 44.2 million barrels in June, compared with 41 million barrels a year ago, latest data from state-run Korea National Oil Corp. showed. The June inventory was also the highest since 48.44 million barrels in October 2020.

China's independent refiners have been forced to cut sweet crude purchases as the private refining sector continues to face a shortage of crude import quotas, while limited oil product export quotas and sluggish domestic consumer fuel demand have also led to a build up in excess middle distillate stockpiles, S&P Global Platts reported earlier based on information collected from multiple private refineries in Shandong.

As a result, Chinese independent refineries' top feedstock, ESPO Blend crude, saw its price differential fall to a 4-month low. The medium sweet Far East Russian grade was assessed at a premium of $1.75/b to Dubai crude Aug. 25, down almost $2/b from the 2021 high of $3.5/b on June 17, Platts data showed.

Light sweet Southeast Asian grades

In Southeast Asia, Vietnam's desperate attempt to offload its excess crude supplies could weigh heavily on various Southeast Asian sweet crude spot premiums over the next few trading cycles.

Vietnam exported 303,061 mt, or 71,659 b/d, of crude in July, up 14.5% year on year and 32.4% higher from June, latest Vietnam Customs data showed.

The country aims to raise crude exports to 90,000 b/d or more over the coming months due to the sharp decline in feedstock requirements among domestic refineries, which are looking to slash middle distillate output following dismal transportation fuel sales at home, according to sources at state-run PetroVietnam and Binh Son Refining and Petrochemical.

Accordingly, PetroVietnam's trading arm PV Oil has been on a crude oil selling spree. It recently sold a 300,000-barrel cargo of Su Tu Den crude to Vitol for Oct. 1-7 loading and a similar-sized cargo of Chim Sao crude for Oct. 12-16 loading to Japan's Taiyo Oil, according to low sulfur crude traders in Singapore with direct knowledge of the matter.

PV Oil is currently looking for a buyer to take a cargo of Ruby crude loading in October, and more cargoes of Vietnamese sweet crude could be offered late in the month, trading sources in Singapore with direct knowledge of Southeast Asian spot trades told Platts.

Spot premiums for Malaysian and Indonesian grades have been negatively affected by the increased volume and variety of Vietnamese low sulfur crude grades available in the Southeast Asian market, the trading sources said.

Price differentials for Malaysia's flagship Kimanis, Labuan and Kikeh crudes have fallen to 7-week lows in the week ending Aug. 27, while Indonesia's Banyu Urip crude saw its spot premium against Dated Brent fall to $1.45/b Aug 25, from $2.1/b on July 21, Platts data showed.

Indonesia's feedstock demand wanes

Indonesia's high gasoline inventory also bodes ill for regional light sweet crude and condensate prices, trading sources said.

The country's gasoline stocks have reached a 7-month high recently amid dismal consumer demand, a middle distillate marketing source at state-run Pertamina told Platts, without providing a specific volume.

Indonesia is a regular buyer of light sweet crudes from Malaysia, Brunei and Vietnam, while Pertamina's subsidiary Trans-Pacific Petrochemical Indotama, or TPPI, which operates a 100,000 b/d splitter, regularly procures Australian condensate for gasoline blending.

However, the country's high gasoline stocks prompted major refineries to cut back on throughput and overall run rates, limiting light sweet crude and condensate purchases.

TPPI typically receives more than 1 million barrels/month of Australian condensate through Pertamina's trading branch or Western trading houses including Glencore. However, the Indonesian end-user has been seen inactive in condensate purchases so far in August.

Indonesian gasoline demand is expected to remain sluggish, as slow COVID-19 vaccination rates prompt cautious consumer behavior. Driving activity in Southeast Asia's biggest motor fuel consumer has continued to range between 20% above and 10% below baseline levels since early August, having yet to recover to the near 60% above baseline level recorded from late May to early June, according to mobility data from Apple.