What's Down: Asia's Middle East crude market will begin trading on a weak note, with some grades, such as Upper Zakum, expected to change hands at discounts to their official selling prices, industry insiders say.
Coming warmth cools Asian crude oil market
Asia's Middle East crude market will begin trading on a weak note, with some grades, such as Upper Zakum, expected to change hands at discounts to their official selling prices, say industry insiders.
Demand for March loading cargoes may weaken considerably, with refineries in Japan and South Korea kicking off planned maintenance, while the end of the winter season may also result in less demand for heating fuels.
"Overall sentiment is bearish, and I expect PG grades will trade at discounts," said a crude trader at a north Asian refiner. "Refiners are going in for turnarounds and the weather will turn warmer."
Buying by Japanese refiners as the country battled record snowfall and northern Asia reeled under the coldest weather in decades drove prices in Asia's spot Middle East crude market higher in the past few months.
Premiums on cargoes for grades such as Abu Dhabi's Murban and Upper Zakum rose sharply during the month, while Qatar Marine cargoes for next month were snapped up in the first day of trading by Japanese refiners, according to market sources.
Sentiment had weakened towards the end of last month when February cargoes of Murban were traded at a discount.
That might continue this month when cargoes for March will begin to be traded, say refiners and traders.
Refineries belonging to Japan's JX Nippon Oil & Energy, Kyokuto and Idemitsu, South Korea's SK Energy, GS Caltex and Hyundai Oilbank, as well as Petrochina and Sinopec, will shut for planned maintenance in March and April.
Others in the region, such as Malaysia's Petronas and Singapore's Shell refinery, will also be under maintenance, resulting in a drop in demand for crude.
Temperatures will also begin to rise as the spring season begins in March, traditionally a weak demand period for energy products, said traders.
"Sentiment itself is weak and refinery turnarounds will mean more grades will start at a discount," said a trader at another north Asian refiner.
Still, rising demand from China, the world's second biggest oil consumer, may offset some of that weakness, say traders.