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Malaysia's Kimanis crude Dec loading program longer on month, sentiment mixed

Highlights

Recovering demand, stronger cracks could support regional crudes

Wider Brent/Dubai spread, overhang weighs down sentiment

The December-loading program for Malaysia's Kimanis crude emerged Oct. 12, shedding light on the supply-side fundamentals of Malaysian sweet crudes, while a mixed outlook developed for the December trading cycle, according to market sources.

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The December-loading program for Kimanis crude reflected a total of eight cargoes, three more than the previous month, with Petronas holding three 600,000-barrel cargoes and ConocoPhillips holding two similar-sized cargoes. PetroBrunei, Shell and PTT are each holding one similar-sized cargo each, according to the loading program.

The longer loading program on the month comes after production issues at an offshore oilfield operated by Royal Dutch Shell were resolved, easing the tight supply of Kimanis crude in previous months, according to market sources.

"I feel [Malaysian crude prices] will be not as high as last month, anticipating Kimanis would be as normal [production]," said a crude oil trader based in Malaysia.

Among trades for Malaysian crude cargoes in September, Western trader Trafigura was heard to have sold a November-loading Labuan crude cargo at a premium in the low-$3s/b to Platts Dated Brent, FOB, while state marketer Petronas sold another Labuan crude cargo with cross-month loading dates over late-November to early-December at a premium of close to $4/b to Dated Brent, FOB.

Other market participants said that the longer loading program may not sufficient to ease cash differentials of Malaysian crudes, as it was met with increasing demand as countries in Asia ease COVID-19-related lockdown measures.

"Major factor is recovering demand, especially from COVID-19," said a Brunei-based crude oil trader, adding that cash differentials are likely to increase on the month.

Another supportive factor for middle-distillate rich Kimanis crude is the strengthening of gasoil cracks, which could make refining the crude more profitable for end-users, sources said.

The second-month gasoil swap crack against Dubai swap has averaged $14.53/b in October to date, rising sharply from an average of $10.77/b over September, S&P Global Platts data showed.

Widening Brent/Dubai

Market participants said that several bearish factors remained despite rising gasoil cracks and crude demand, which could weigh down regional sweet crude grades.

The front-month Brent/Dubai Exchange of Futures for Swaps has widened to average $4.24/b in October to date, compared with an average of $3.64/b over September, Platts data showed, which could increase the attractiveness of Dubai-linked sour crudes over Brent-linked regional sweet crudes.

"Regional [crudes] should be capped as Dated Brent/Dubai is very wide," said a crude oil trader based in Thailand, adding that "people tend not to buy regional [crudes] in December as the cargo will arrive end-December and they [will] need to hold inventory for next year."

An overhang of Kimanis crude from the November-loading cycle could also point towards insufficient demand, pressuring premiums for December-loading cargoes, according to a source at a trading house. Several sources said a November-loading cargo held by a trading house was still unplaced as of Oct. 11.

"Market is not short fundamentally, and demand is not that big," the source added. Nevertheless, some market participants remained optimistic of a stronger market for December-loading regional crudes, expecting stronger demand to outweigh the widening EFS.

"Demand should be supported with the relaxation of COVID-19 restrictions... with wider EFS, Middle East volumes will be more competitive, but overall I feel the market is still tight," said a Singapore-based crude oil trader. "West African and US flows are reduced, so China and India might take more Middle East crude."