MOSCOW (MRC) -- Indian and Chinese oil buyers are snapping up Middle East crude after spot premiums for February-loading cargoes slumped by more than half to three-month lows on improved supplies to Asia, reported Reuters.
The drop in crude differentials, also seen in some European and African crudes, comes as forecasters such as OPEC predict a supply surplus in 2022. Still, views differ on the extent and Goldman Sachs said on Friday average demand will still hit a record next year.
Easing concerns about the impact of the new coronavirus variant Omicron on Asia's fuel demand are also supporting Asian refiners' margins, trade sources said.
"It's quite a busy week as demand all came out," a Singapore-based analyst with a trading firm said.
Supplies to Asia are improving as pricing differences in crude grades make Atlantic Basin crudes become more attractive.
The Organization of the Petroleum Exporting Countries and their allies have also agreed to continue ramping up output by 400,000 bpd in January.
The slide in spot premiums comes after they hit multi-year highs for January-loading cargoes.
India's Reliance Industries Ltd snapped up 4 MM bbl of Abu Dhabi Das supplies this week, while top refiner Indian Oil Corp has bought 3 MM bbl of Upper Zakum and Basra Heavy crude.
Fuel demand from the world's third-largest oil importer and consumer is robust as industrial activity picks up. Gasoil sales, which account for about two-fifths of India's overall refined fuel consumption, jumped nearly 18% in the first half of December from the same period in November.
In China, Rongsheng Petrochemical, the trading arm of top private refiner Zhejiang Petrochemical, bought 8 MM bbl of Abu Dhabi and Oman crude for February-March loading, on top of 1 MM bbl of February-loading Abu Dhabi's Upper Zakum last week. The refiner also purchased at least 2 MM bbl of Emirati and Iraqi crude for delivery between February or March and December.
Another mega Chinese refiner, Hengli Petrochemical, took three of four Qatari al-Shaheen crude cargoes in Qatar Energy's tender while the remaining cargo went to Japan's top refiner ENEOS Holdings.
But there has been less appetite from Chinese independent refiners which have been hit by restrictions on import quotas, increasing scrutiny on tax evasion and probes into unapproved refining units in Shandong province. That has caused spot premiums for Russian ESPO crude to slip to four-month lows.
As MRC wrote previously, Reliance Industries (RIL) has taken off-stream one of its polypropylene (PP) plants in Jamnagar, India for a scheduled maintenance. Thus, this unit with an annual capacity of 400,000 tons/year of PP was shut on 5 August 2021 and will remain idle for approximately one month.
According to MRC's ScanPlast report, PP shipments to the Russian market were 1,226,530 tonnes in January-October 2021, up by 26% year on year. Supply of propylene homopolymers (homopolymer PP) and block-copolymers of propylene (PP block copolymers) increased, whereas supply of injection moulding stat-copolymers of propylene (PP random copolymers) decreased significantly.