Markets sustain bullish sentiment as India starts buying

Singapore — Backwardation in the benchmark Dubai crude futures intermonth spreads widened a tad at mid-morning in Asia on Dec. 3, as optimism over a favourable OPEC+ meet outcome and demand from Asia was increasingly evident.

Around mid-morning Singapore time (0300 GMT), the January/February spread was valued at 8 cent/b, up 7 cents/b from the Asian close on Dec. 2, S&P Global Platts data showed.

Market participants were expecting the OPEC+ meeting to conclude on favorable terms, with signs of a gradual tapering of cuts in the first quarter of 2021.

"OPEC's major producers, Saudi Arabia, Russia and the UAE are said to have had constructive talks. Russia is also said to have settled its position after talks with its own oil companies, with a gradual tapering of production cuts within the first quarter of 2021," said a source.

The 22-country OPEC+ alliance, which controls roughly half of the world's crude production capacity, is deciding whether to keep in place its collective 7.7 million b/d output cuts to shepherd the oil market's recovery from the pandemic, instead of scaling them back to 5.8 million b/d in January as planned.

The outcome will set the tone for oil prices in 2021 as markets welcome optimistic cues following the approvals of the COVID-19 vaccine in the UK.

Traders are counting on Asian demand to sustain the momentum as India, China, Japan and South Korea are expected to display a robust appetite for Middle East crude for February-loading barrels as well.

India's largest refiner, Indian Oil Corp., issued a tender for purchase of crude oil from various sources including the Middle East. The tender closes Dec. 3 with validity Dec. 4 and delivery over Feb. 1-18.

"India was expected to buy. As we have seen refinery run rates increase, they would issue tenders. Expect them to look at several options to see which price range works best for them," said a trader in Singapore, indicating other Indian refiners to ramp up their purchases as well.

Meanwhile, the market continues to play the waiting game on how the new trading cycle for February-loading cargoes will pan out post issuance of official selling prices by key Middle East oil producers.

"Think OSPs should be out this weekend or mid next-week at best. Once OPEC+ wraps up and takes a call, all Middle East producers will get going on their [OSP] issuances to kick off the much awaited trade cycle," said the same trader.