Omicron threatens Asian oil demand as prices favor Atlantic crude



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By Noah Browning and Florence Tan

LONDON / SINGAPORE (Reuters) – Recent changes in the relative price of different grades of crude have given oil exporters in the vast Atlantic Ocean basin the best chance in months to sell to Asia’s main consuming region, but sales have been sluggish due to COVID-19 fears of cold demand.

The Omicron variant of the coronavirus has reduced oil consumption in Asia, just as American and West African sellers based their hopes on changing market structure opening an easier route eastward than competing oil from the Middle -East.

Global benchmarks for Brent and West Texas Intermediate crude took a hit last week as supplies eased with sales of US Strategic Oil Reserves (SPRs) and the decision of the Organization of the Petroleum Exporting Countries and the United Nations. their allies to increase production.

The premium of Brent crude over Dubai quotes fell to $ 2.56 a barrel last week, the lowest since March, making the export of Atlantic Basin crude more attractive to Asian buyers, traders say and data from Refinitiv. (Graphic: Brent-Dubai spread, Angolan Girassol gross, https://fingfx.thomsonreuters.com/gfx/ce/lgpdwonamvo/Pasted%20image%201638861095531.png)

Sales of Nigerian and Angolan oil to India increased, as did sales of US WTI Midland crude to East Asia.

Angolan crude oil Girassol and Nigerian Qua Iboe were offered at robust premiums of $ 1.60 and $ 1.40 above Brent per barrel respectively on a free on board basis – still cheap compared to light grades from the Middle-East. [CRU/TENDA][CRU/WAF]

“We have seen an arbitrage window open and demand from India and some more eastern markets has been encouraging in recent weeks, which has kept bids high,” an oil seller said. West African crude.

“However, trade has become calmer over the past few days. There is still a lot of uncertainty as to how / if the new lockdowns will affect demand in the new year.”

With the refinery maintenance season scheduled from March and as refining margins have deteriorated sharply recently following Omicron fears, Asia’s appetite may not be as robust as it used to be.

Traders said Chinese buyers would not be easily tempted by more affordable barrels, as independent refiners allocated thinner import quotas this year and state-owned enterprises that are already well supplied.

The ongoing tax investigations in Shandong province, where most of the independents are based, have also curbed appetite for Brazilian and African oil from the world’s largest importer.

Beijing is also expected to conduct a second auction of SPR crude from its storage in eastern Zhoushan.

Bids for qualities like Congolese Djeno fell to around $ 2 a barrel above the March ICE Brent for delivery to China, against premiums of around $ 3 a barrel last month, said a buyer from East Asia.

“We mainly shopped for the year. The bids are just too high and the market does not justify Atlantic Basin crude being so expensive now with the pandemic returning,” said a second buyer.

While the US SPR’s publication initially weakened the values ​​of Atlantic Basin acidic qualities such as Mars crude and allowed some cargoes to be sold to Asia, the window is now only “marginally open,” said a trader based in Singapore.

The spot haircut for March hit its highest level in more than two months after WTI’s Brent haircut widened, boosting US demand for domestic crude. [CRU/C]

“It was cheap, but now it’s not, and there hasn’t been a lot of trading so I don’t know if (cargoes) have been placed,” another trader said. . (Chart: WTI-Brent spread, March gross, https://fingfx.thomsonreuters.com/gfx/ce/lbpgnlbwqvq/Pasted%20image%201638860656821.png)

(Reporting by Florence Tan in Singapore and Noah Browning in London; Additional reporting by Arathy Somasekhar in Bengaluru; Editing by Jan Harvey)


Steve R. Hansen