Asia oil/products: Crude retreats, product arbs widen

25 Feb 2022

Quantum Commodity Intelligence – Asian crude prices on Friday continued to retreat from this week’s seven-year highs after the US announced its sanctions were not targeted at energy, while arbs started to widen on refined products over fears of product supply disruption from credit/insurance issues.

Dubai cash for April delivery was assessed at $95.81/b February 25 (1630 Singapore time), down $2.79/b from the previous Asia close, while April DME Oman futures tumbled $5.01/b at $92.68/b.

But Dubai was again left behind by rocketing Brent, which has surged higher versus other global benchmarks this week.

April cash Brent was assessed as $101.60/b at 1630 Singapore time, down a modest $1.65/b on the previous-Asia cash close, lifting the Brent/Dubai spread to new multi-year highs.

The April cash Brent/Dubai spread was assessed at up more than $1/b on the day at $5.79/b, while the front-line April EFS up $0.99/b at $9.78/b – the highest EFS since the mid-2000s according to trading sources.

Meanwhile, the front-month Apr/May Dubai cash spread was stable at $1.08/b, while the key M1/M3 (Apr22/Jun22) spread, which is used by NOCs for setting Official Selling Prices, was also steady at +$4/b.

Products

Naphtha cracks stabilised at record highs on Friday on fears of a downturn in supply from Russia, despite the fact the US confirmed energy was not part of its sanctions. Swaps tracked crude and the cash differential to swaps was unchanged amid no liquidity. Quantum assessed at $901.25/mt CIF Japan for delivery H2 April/H1 May, down $16.75/mt on the day. The crack remained elevated at $185/mt and the backwardation widened for March/April by $1/mt to $21.50/mt. The east west was stable.

Gasoline cracks nudged higher amid a small draw in US gasoline stocks on the week. No trade was heard and bids and offers remained far apart from the prevailing cash differential. Quantum assessed 92 RON at $112.40/b FOB Singapore on a cash differential of $1.23/b, with RON 95 assessed at a $3/b premium at $115.40/b. The crack to Brent was valued at $14.67/b, up $0.35/b on the day, but refining margins have been static for almost two weeks, bouncing between $14-15/b. The backwardation in the market, however, has increased to reflect crude, with the March/April spread at $2.10/b, up $0.10/b on the day.

Jet cargoes for loading out of Singapore were bid up strongly during the Platts trading window with Vitol bidding for cargoes at $1.50/b over swaps for loading 15-20 days forward as Asian prices reacted to a huge arb opening west. That pushed the cash differential to swaps for cargoes loading in the next 15-30 days $0.08/b higher at $1.48/b, leaving a flat price assessment of $110.03/b FOB Singapore. The crack rose to a three-day high of $12.30/b. The east-west for March widened a chunky $13/mt to $54/mt, meaning the arb west for Middle East barrels is far more profitable.

10ppm diesel cracks finished the week firmer as the pull of barrels to Europe got stronger and the March EFS widened to $32/mt, up $7/mt on the day. Cargoes for loading 15-30 days forward were assessed out of Singapore at $114.67/b FOB, down $1.64/b on a day when crude fell more. Bids and offers were wide and the cash differential was unchanged at $1.89/b. That left the crack up $0.54/b on the day to $16.84/b. Fears of interruption to Russian supply, not from sanctions, but from fears of sanctions, was behind the rise. While the crack is firm, it remains almost $2/b below record highs. The market is tight, with the March/April spread widening $0.20/b on the day to $2.35/b.

Fuel oil cracks rebounded as flat prices fell by less than crude. One deal was heard at $17/mt over swaps for marine fuel 0.5% for loading 20-25 days forward, which equated to $746.63/mt FOB Singapore. The backwardation was seen at $0.72/mt per day. Quantum assessed at $746.50/mt FOB for the average price of the 15-30 day laycan, down $11.25/mt on the day. The crack firmed $0.55/b to $10.36/b to claw back most of Thursday’s losses. The east-west is widening with Asia rising to attract European barrels, with the March up $4/mt to $44/mt. Russia is a big fuel supplier to Europe.