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Asia crude oil: Key market indicators this week

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Asia crude oil: Key market indicators this week

Singapore — Asia's crude oil market activity in the May 10-14 trading week is expected to pick up steam, although sentiment continues to be weighed down by demand concerns across Asia amid COVID-19 resurgences, which have caused several countries to introduce, or increase lockdown measures.

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July ICE Brent crude futures were pegged at $68.59/b at 0300 GMT May 10, up 65 cents/b from the 0830 GMT Asian close on May 7.

Middle East Crude

**Activity in the week ahead will focus on the issuance of buy and sell tenders by Asian refiners and Middle East producers for July-loading barrels, respectively, as China, Japan and Russia emerge from seasonal holidays. However, trade is likely to remain muted as India continues to deal with a surge in COVID-19 infections, while other countries like Thailand and Japan also deal with fresh outbreaks.

**Market participants expect Asian demand to remain pressured by the spread of the pandemic. Lighter crude grades are expected to trade at smaller premiums compared with medium and heavy grades, which could trade close to parity, or at discounts due to weak demand. However, a wide Brent-Dubai spread and economic recovery in the West have so far prevented the flow of arbitrage crude from the West into Asia.

**Last week, ADNOC issued its first Official Selling Prices after the launch of the Murban Futures contract on the ICE Futures Abu Dhabi exchange. Saudi Aramco also issued OSPs for its Asia-bound crude with a cut of 10-30 cents/b across all grades.

**Qatar Petroleum issued June OSPs for its Qatar Land and Qatar Marine crude with a cut of 10 cents/b and 5 cents/b, respectively, from May prices. OSPs by other Middle East producers such as Kuwait Petroleum Corp., Iraq's SOMO and Iran's NIOC are awaited.

**Dubai cash-futures, or M1-M3, averaged $1.09/b in the week ended May 7, against 57 cents/b in the week ended April 30.

**Intermonth spreads were lower during mid-morning trade May 10 with July-August pegged at 43 cents/b, down 1 cent/b from the Asia close on May 7.

**July Brent-Dubai Exchange of Futures for Swaps was pegged at $3.09/b mid-morning May 10, 6 cents/b lower from the Asia close on May 7.

Asia Pacific Crude

**Indonesia's TPPI condensate tender, which emerged at the close of the May 3-7 trading week, could absorb unsold June-loading barrels of Australia's North West Shelf condensate. Premiums for July-loading barrels are expected to rise amid a lean loading program with only two cargoes available during the month.

**Traders await Indian ONGC's tender results for July-loading Sokol crude. Cash differentials could remain resilient amid a wide Brent-Dubai EFS although weaker Northeast Asia demand could limit the potential price upside.

**Traders will be evaluating the impact of recovering naphtha cracks on Australia's Cossack and Papua New Guinea's Kutubu Blend.

**The July-loading program for Malaysian crude, as well as tenders from Vietnam's PetroVietnam Oil, is awaited. Cash differentials for July-loading regional grades are expected to remain dull amid weakened demand in Southeast Asia due to the coronavirus pandemic.

**Traders will keep an eye out for Sudan/South Sudan's June loading Dar Blend, where sentiment is expected to remain firm following resilient fuel oil cracks.

**Market participants will also be awaiting Brunei's March OSP this week.

Delivered Crude

**Market participants will be keeping a lookout for fresh trades of Brazil's August-arrival Tupi crude, as supply tightened given the shorter June-loading program and stronger demand from Europe and the US West Coast reducing volumes to Asia.

**A wide Brent-Dubai Exchange of Futures for Swaps continue to cast a bearish light on delivered US WTI Midland crude to Asia, as competitive Middle Eastern crude grades such as Murban remained a preferred option by Asian buyers.

Crude Futures

**Crude oil futures enter the week sensitive to the evolving pandemic situation in Asia, and in particular India and Japan, the third and fourth largest importers of crude oil, respectively.

**Market is concerned that India's protracted pandemic situation could yield more mutant strains of the virus, which could reverse the progress other countries have made in controlling the pandemic.

**Nevertheless, in the week ended May 7, the July contract for Brent rose 2.28% to settle at $68.28/b on May 7, whereas the June contract for NYMEX light sweet crude rose 1.78% to $64.71/b. The rise in oil prices came as rebounding demand in the US and Europe is expected to compensate for the demand-destruction brought about by the pandemic in Asia.

**The market also received some tailwind from the depreciation of the US dollar. The June contract for the ICE Dollar Index fell 1.15% last week to settle at 90.216 on May 7, with a sharp fall seen May 7 after the release of a disappointing nonfarm payroll report.