Asia oil/products: Crude rebounds, product cracks lag recovery

21 Mar 2023

Quantum Commodity Intelligence - Asian crude prices on Tuesday moved sharply higher after the recovery in Brent, as concerns over the banking sector eased slightly, while in the oil products market the rebound generally ate into refining margins.

Dubai cash for May delivery was assessed at $73.70/b for 21 March at the Asia close (1630 Singapore), up $3.41/b, while May23 DME Oman futures closed $3.55/b higher at $73.90/b.

Activity picked up on Dubai partials resulting in the convergence of an Upper Zakum cargo, but the last-traded price of $73.70/b valued the grade at around Dubai swaps +$1.20/b, a one-month low in terms of premiums.

The retreat in premiums is expected to lead to a cut in Saudi OSPs, along with other NOCs, while traders will be keenly watching for any export curtailment, potentially via OPEC.  

Middle East grades continue to face stiff competition from Urals crude after Russia was confirmed as China's biggest supplier of crude oil in the first two months of the year, with refiners picking up discounted cargoes and surpassing Saudi Arabia as the country's main origin. Volumes reached around 2 million bpd of Russian oil arriving in China through February, the highest monthly figure on record.

ICE Brent futures for May23 were assessed $74.10/b at 1630 Singapore, up $3.79/b from the previous Asia close, while May Brent/Dubai widened back out to $0.40/b, up from the previous session's six-month low. The May23 EFS also widened by around $0.35/b to $1.60-$1.70/b on the Asia market close, while June was heard trading at $1.85-$1.90/b.


Naphtha cargoes continued to be offered down on Tuesday as Equinor and Shell offered along the curve in the market without finding buy-side interest. The 1H May laycan was seen at a best-priced $635/mt CFR Japan, with 2H May at $630/mt and 1H June at $629/mt. That cut cash differentials to paper along the curve, although the recovery in crude from Monday's lows helped boost the outright $31.25/mt to $629.25/mt. The spot crack recovered slightly, gaining $4.45/mt to +$87.20/mt.

Gasoline trade was subdued by recent standards, with only highball offers at the front and middle of the 92 RON curve seen by the Asia close on Tuesday. Following crude higher and tailing some European buying on the back of refinery strikes in France, the 92 RON market was up $4.12/b at $90.64/b by the close. The spot crack to Brent climbed for a third consecutive session, touching a one-week high as it gained $0.56/b to +$15.82/b.

Jet swaps rallied, but not as much as diesel, to leave the regrade at a fresh four-month low. Demand for jet remains on the rise, according to IATA and industry analysts, and the regrade is a function of firmer diesel amid prolonged French strikes that some analysts say have cut refining throughput by at least 500,000 bpd. That being said, cash differentials fell sharply on Tuesday, with both BP and Aramco offering in the Platts window, the former offering at $0.20/b under swaps and the latter selling 100,000 barrels at $0.70/b over swaps to Vitol. Swaps are being dragged up by diesel and the cash differential is lagging.

Diesel swaps rose sharply overnight, but they lagged the step higher in benchmark crude, which rose as contagion fears eased and cracks weakened slightly. The backwardation, however, continued to steepen, with M1/M2 backwardation the highest in six weeks and reflecting tighter markets in Europe. The EFS is at a six-week low. Diesel flat prices continue to yo-yo with crude volatility and remain hovering under $100/b. In the physical markets, cash differentials were bid at $1.70/b over swaps and offered at $1.40/b over for differing loading dates, both basis FOB Singapore. The cash differential was assessed at $1.60/b.

The marine fuel 0.5% sulfur cash trade saw a single trade by the close of business, as Shell sold 20kt to Gunvor for Apr 15-19 delivery at an $11/mt FOB Straits premium to the curve. That was enough to keep the recent upwards pressure on physical differentials going, with the spot assessment jumping another $2.66/mt to $11/mt over the curve. That left the outright price $21.07/mt higher on the day at $536.96/mt, with the spot crack to Brent slipping $0.61/b from Monday's five-week high to +$3.98/b.

High sulfur fuel oil cash differentials ran into selling pressure, with 180 CST offered along the curve by Mercuria and Trafigura. That cut $1.20/mt from the differential to $7.14/mt FOB Straits. For the 380 CST market, PetroChina remained a bidder at the front and middle of the cash curve, while Vitol was seen in the middle and back. That did little to adjust the market, however, with those moves leaving the 180 CST flat price up $14.30/mt on the day at $393.50/mt, with the 380 CST gaining $16.89/mt to $384.58/mt.