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Asia crude - Key market indicators this week

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Asia crude - Key market indicators this week

New York — Crude oil trading in Asia is likely to be dominated in the week starting Nov. 20 by news flowing from meetings between OPEC and non-OPEC countries over Nov. 30-Dec. 1, where the group's production strategy heading into 2021 is expected to be hammered out .

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Key OPEC+ ministers ended preliminary consultations Nov. 29 with no firm consensus on future production levels, S&P Global Platts reported earlier, as not all members were convinced of the need to roll over deep output cuts to shore up the oil market.

The dissent could make for difficult crunch-time talks when OPEC and its non-OPEC partners officially meet over the next two days to hammer out an accord that will set the tone for oil prices in 2021.

MIDDLE EAST CRUDE

** The end of the trading cycle for January-loading crude on Nov. 30 is likely to see a last burst of trading activity later in the day, following a roller coaster week for benchmark Dubai last week that saw a brief rally on hopes of a buying binge from China and India and then a correction when it failed to materialize.

** Any OPEC+ discussion around production levels is likely to dictate premiums in the Dubai-linked Middle East crude market as trade for February-loading cargoes gets underway Dec. 1.

** Middle East producers are expected to announce their official selling prices for January-loading crude starting this week. The market in general expects the OSPs be to raised, given the strength in Dubai's differentials to front-month Dubai futures in November. Dubai's differentials to futures has averaged plus 18 cents/b to date in November, up from the minus 67 cents/b averaged over October.

** However, producers will have to weigh the strength in Dubai and spot premiums against still lackluster refinery margins and a glut of supplies globally. Indian and Chinese refiners picked up more attractively priced West African and U.S. grades over Middle East barrels last week, highlighting the competition Middle East producers will face in deciding the next round of price increases.

** Dubai Inter-month spreads were a tad weaker in mid-morning trade Nov. 30, with the December/January spread pegged at 12 cents/b, compared with 16 cents/b on Nov. 27. The January Brent/Dubai Exchange of Futures for Swaps or EFS was pegged at 62 cents/b mid-morning, narrowing from 71 cents/b at the Asia close Nov. 27.

ASIA-PACIFIC CRUDE

** Trading activity is expected to wind down in the Asia-Pacific crude market in the week starting Nov. 30 as Asian buyers have mostly wrapped up purchases for January-loading barrels.

** Most January-loading Malaysian and Vietnamese cargoes have already traded in the spot market, with a spot H2 January-loading Labuan heard still being offered at around Dated Brent plus $2-$2.75/b, traders said.

** Details of the outcome of end December-loading Sudan and South Sudan's Nile and Dar Blend tenders are expected to emerge during the week, with expectations that premiums could go above $1/b to Dated Brent on firm Chinese demand.

** Sentiment was mixed for middle distillate-rich crude going into the new trading cycle for February-loading barrels as some market participants are doubtful the stronger premiums seen for January barrels could be sustained with Southeast Asian demand is still not seeing a significant pick up.

** A fresh tender from India's OVL for Far East Russia's Sokol crude for end January-early February loading could emerge this week.

** Market participants will also be on the lookout for fresh loading programs for February-loading Australia's North West Shelf condensate and other light sweet crudes.

DELIVERED CRUDE

** With the conclusion of trade activity for February-delivery Brazilian Lula (Tupi) crude to Asia, buying interest could emerge for March-delivery cargoes this week.

** Selling ideas for March-delivery barrels of Tupi to China were to heard to be higher, with talk indicating levels of over $3/b to May ICE Brent futures on a DES Qingdao basis.

** Market participants will be on the lookout for indications for the fresh March-delivery US' WTI Midland crude trade cycle. Last trade indications for February-delivery barrels were heard to have been largely steady at levels equivalent to premiums in the high $1/b to Platts Dated Brent crude assessment, DES North Asia.

CRUDE FUTURES

** Analysts say news from OPEC+ meetings will be a substantial risk point for oil prices. A three- to six-month extension of the supply cuts may not spur a rally as this is the base scenario that the market has already priced in. However, any roll-back in production cuts may affect the market negatively.

** The market is jittery going into the meeting on signs of fissures within the OPEC+ alliance. The UAE was still weighing its options on a potential exit from OPEC and Iraq deputy Prime Minister Ali Allawi has criticized the alliance for ignoring members' economic and political conditions before imposing "one size fits all" production quotas.

** OPEC and nine allies led by Russia have implemented historic production cuts to combat the pandemic-fomented collapse in oil demand. The curbs began at 9.8 million b/d from May, and then were eased to 7.7 million b/d in August as the world economy, particularly in Asia, began to recover.

** They are scheduled to taper again to 5.8 million b/d from January, but struggles to contain COVID-19 infection rates in western countries have stalled the global economic recovery, prompting some OPEC+ members to advocate an extension of the current cuts.

** The January contracts for Brent and NYMEX settled 7.16% and 7.33% higher on the week respectively in the week ended Nov. 27, driven by more positive news on the COVID-19 vaccine front, including successful trials of the Oxford-AstraZeneca vaccine.