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Falling oil prices, floating storage boost Asian premiums
[SINGAPORE] Asian buyers are paying more to secure crude oil, supported by higher refining margins on the back of tumbling crude prices and the possibility of storing excess cargoes on tankers for later sale.
The stronger Asian demand is bringing some relief to oil producers, whose profits have slumped in line with a near 60 per cent plunge in oil prices since June to below US$50 a barrel.
"We think that, led by Asia, global oil demand has (already) started to pick up," Energy Aspects analyst Virendra Chauhan told Reuters Global Oil Forum.
Traders had expected demand for March-loading cargoes in Asia to be weaker than the previous month, as the region enters its peak refinery maintenance season in the second quarter.
However, Asian refiners have been willing to pay more for crude relative to the Brent and Dubai benchmarks as the profit from processing a barrel of crude into oil products has risen in line with a weaker oil price.
Abu Dhabi's main export grade Murban last week flipped into a premium of more than 50 cents a barrel after earlier deals at parity to its official selling price (OSP).
"The market had expected Murban to trade at minus 50 cents but it's now in plus 50," a trader with a North Asian refiner said.
Key sellers of the grade such as BP, Royal Dutch Shell and Total had been reluctant to sell their cargoes at low prices, traders said. A contango market structure, where prices in the future are higher than spot prices, enabled them to hold on to supplies.
Demand for Russia's Pacific crude grades also improved despite higher supply, with spot premiums for Sokol strengthening some 50 cents a barrel against Dubai quotes.
Industry sources warned some of the demand appeared to be coming from oil traders soaking up cheap supplies to put into storage. "It looks like demand is for the contango play rather than from refiners," said a crude oil seller in Asia.
But any run-up in premiums could also be short lived.
Up to 40 million barrels of crude sold is expected to be stored on board tankers, although an improvement in spot premiums could also prompt traders to change their strategy.
"Some traders expected a weak market and planned to move oil to storage. But looking at the good market, they (may) drop the plan and sell to lock in profit," the North Asian trader said.
A large rise in inventories could also delay any recovery in the oil price, Barclays analysts said in note.
"Storage facilities are helping absorb the market imbalance for now, but the growing inventory could dampen an eventual price recovery if the fundamentals tighten," the analysts said.