Singapore — The Middle East crude producers led by Saudi Arabia will supply full contractual term volumes to the Asian refiners for the fourth month in a row in April, despite committing to production cuts late last year to balance oil markets globally, refiners from China, India, Taiwan, South Korea and Japan as well as two producers told S&P Global Platts this week.
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Still, premiums for the Middle East cargoes are likely to remain well supported as some Middle East producers have continued to decline request for additional term volumes from the Asian refiners for at least the second month in a row, pushing them to hunt for barrels in the spot market.
"Saudi Aramco haven't made any cuts [to Asia] but they are not giving increased volumes -- same as previous months," said a trader at a China-based refiner.
Sour crude market staples such as Upper Zakum and Al Shaheen are expected to see firm demand in the May spot trading cycle this month on the back of tighter medium and heavy sour crude supplies, coupled with upcoming summer demand.
"I don't think Al Shaheen will trade flat [at front-month Dubai plus 60 cents/b]," a trader with a North Asian refiner said on Thursday. "Middle distillate cracks are good, and demand is quite strong, I think Shaheen will do better."
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A May-loading cargo of Upper Zakum traded in the Platts sour crude Market on Close assessment process earlier this week, at a premium of 60 cents/b over Platts front-month Dubai crude assessments. Bids for the medium sour crude have since moved past the trade level to premiums of up to 65 cents/b standing at the close of the MOC process on Wednesday.
This is the fourth consecutive month that Aramco has committed to fulfilling Asian term volumes, while simultaneously cutting production as part of an OPEC-and-allies agreement. Other key Middle East producers have also committed to fulfill their term volumes for cargoes loading in April, said sources.
Oil refineries in China, Japan and South Korea form a major demand center for OPEC crude oil exports eastward, most of them held in place via long-term agreements, known as term contracts.
Notice of such cuts, if any, are typically announced to term customers within the first two weeks of the month preceding loading.
TERM BARRELS 'FULLY SUBSCRIBED'
Volumes locked into term contracts with the Middle East oil producers were "fully subscribed" said a source with a producer this week.
"Supply wise [the] situation is very tight, we could feel it in March and [also for] April, people are requesting incremental [volumes], but we are already committed [to term customers]," the source added.
Similarly, Aramco continues to limit requests for incremental volumes from Asian refiners for the second month in a row, market participants told Platts. Refiners may at times prefer to 'overnominate' from a term supplier than purchase excess requirements elsewhere.
The de facto OPEC leader is in the midst of an ambitious production cut for the first quarter of 2019. Last week Saudi Arabia said it would cut crude production to below 10.1 million b/d in March, from above 11 million b/d in November last year, as the kingdom aims to "lead by example" on the OPEC/non-OPEC output cut agreement that went into force in January.
Saudi Arabia's quota under the deal is 10.31 million b/d. The kingdom pumped 10.15 million b/d in February, according to the latest monthly Platts survey of OPEC production.
A key monitoring committee of the OPEC/non-OPEC coalition is set to meet Monday in Azerbaijan to assess compliance with the deal and discuss market outlook.
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