Singapore May 19 2023: Middle East crude prices in Asia fell to their lowest level in months, despite OPEC+ production cuts, traders said, as Asian refiners held back spot purchases and China and India binged on cheap Russian oil.
Benchmark Dubai crude's premium fell to a 4-month low of 70 cents a barrel above Dubai quotes on Wednesday, while Qatar has set al-Shaheen's July term price at a 27-months-low after increasing supplies.
The fall in prices may prompt top exporter Saudi Arabia to cut prices for its term cargoes to Asia for a second straight month in July, traders said.
"The market sentiment is very weak even though crude oil demand should pick up once maintenance works done in August. This could add pressure on Saudi (Aramco) when setting prices next month," said a Singapore-based trader.
The Organization of the Petroleum Exporting Countries and their allies (OPEC+) will next meet in early June. Iraq's oil minister had said he did not expect OPEC+ to make further output cuts.
Unlike Europe and the U.S. where sour crude prices have strengthened because of the Russia oil boycott and strong demand for alternative supplies, China and India, the world's No. 1 and No. 3 crude importers respectively, are buying record volumes of Russian crude at the highest prices since the December embargo.
Shiptracking data from Kpler estimates May Russian crude arrivals in China to reach around 44 million barrels, the second highest level in history.
China's commercial crude inventory reached 950 million barrels this week, up from less than 900 million barrels two months ago, according to Vortexa data, suggesting that its refiners are not in a rush to buy more oil.
Weak refining margins last month also prompted some Asian refiners to trim output, traders said.
Japan's Cosmo Oil (5021.T) shut one 102,000 bpd crude processing unit on Wednesday, after another Japanese refiner Eneos (5020.T) closed a 129,000 bpd unit last week.
Taiwan's Formosa Petrochemical (6505.TW) plans to trim crude processing at its 450,000 bpd Mailiao refinery in June and July.
Profits at a typical Singapore refinery processing Dubai crude rebounded to an average of $5.34 a barrel in May, from 81 cents a barrel last month, but still far below $22.72 a barrel in May 2022.
"U.S. WTI Midland is more attractive than Murban for us," said a purchasing manager at a South Korean refinery.
Light crude prices are typically at a premium over heavier grades as they yield higher quality products.
U.S. crude is also increasingly more expensive than Middle East oil for Asian buyers, possibly closing arbitrage window for American oil shipments to Asia.
West Texas Intermediate (WTI) crude's discount to Dubai narrowed to 37 cents a barrel on Wednesday, a level not seen in four months, Refinitiv data showed.