Oil's typical buying buzz pauses in Asia as Russia upends market

[SINGAPORE] Some Asian oil buyers are pausing spot purchases as Russia's invasion of Ukraine upends the trading cycle in the world's biggest crude-consuming region.

In a typical market, a flurry of trades would have been completed by now following the issue of official prices and allocations of contracted crude from Middle Eastern producers around the start of the month. But buyers seeking barrels for May loading are now having to navigate wildly fluctuating prices and a changing supply picture given many are shunning Russian crude.

Some spot buy is taking place, but trading - which is usually in full swing at this time - is muted, said traders who participate in the market, asking not to be identified. Buyers usually have until the end of the month to finalise their purchases, but deals are often most active during the third week as they seek to secure spot cargoes to be shipped in 2 months.

It's not just prices being taken into consideration, buyers are also trying to determine the quality of crude to purchase as profit margins for making fuels also fluctuate. Russia is a major producer of diesel and the loss of supply from the nation has driven up demand for the fuel, making crude that yields more diesel when processed much more attractive to refiners.

Middle Eastern suppliers are the logical option for buyers seeking additional oil after the disruption to Russian flows, and that's pushed up spot differentials of Persian Gulf grades such as Qatar's Al-Shaheen to the highest since at least 2014. Opec+ (Organization of the Petroleum Exporting Countries and its allies) nations, however, have so far resisted calls to pump more.

The premium of Oman futures on the Dubai Mercantile Exchange against Dubai swaps eased slightly to around US$8 a barrel on Wednesday (mar 17), compared with a premium of US$11.69 a week ago. It's unusual to swing so wildly and highlights the volatility buyers are facing. Oman is a medium-sour crude that's one of the benchmark grades for Asia.

Thailand's PTT didn't award any cargoes in a monthly tender seeking sour grades for May loading that closed earlier this week, a rare move by the company. Declining spot differentials and volatility in profit margins from turning crude into fuels are some of the reasons behind the decision to pause purchases, traders said.

The resurgence of coronavirus cases across China, the world's biggest oil importer, has also added an extra element for buyers to consider. Still, traders said that the physical market may see more activity in the coming days once there's a stabilisation of price indicators. BLOOMBERG