Higher Saudi prices for January, lower overall demand for crude amid the Omicron uncertainty, the Chinese crackdown on illicit practices at its independent refiners, and refinery maintenance season starting in late Q1 2022 have resulted in Asian refiners abstaining from extra Saudi crude supply for loading in January.
Refiners in the world’s largest oil-importing region have not asked for additional supply from the world’s largest oil exporter, Saudi Arabia, above the term supplies under the long-term contracts, company officials have told Bloomberg.
At least three refiners in Asia will not be seeking extra Saudi crude for January loading, the unnamed officials told Bloomberg.
Asian refiners typically ask for additional Saudi crude in case of strong demand and relatively low official selling prices (OSPs) of the Saudi grades to the region.
Earlier this month, however, Saudi Arabia raised its official selling price for its flagship Arab Light crude to a nearly two-year high premium over the Oman/Dubai benchmark, signaling confidence in Asian demand despite the still high uncertainty about the Omicron variant of COVID.
Arab Light will next month sell for $0.60 more per barrel than it does this month for buyers in Asia. That’s $3.30 a barrel more than the Oman/Dubai benchmark, off which Middle Eastern crude going to Asia is priced. The premium over Oman/Dubai is the highest for Arab Light since early 2020—the months before the pandemic struck.
Apart from the higher Saudi prices, Asian refiners are not rushing to buy crude above the volumes in their term supply deals, due to low refining margins for fuels after the peak winter demand in March, when cargoes loading in January are set to arrive in Asia.
In addition, China’s independent refiners, commonly known as teapots, will likely see lower purchases in coming weeks as the local government is investigating practices at the refineries in the Shandong province, traders told Bloomberg.
Omicron is also weighing on the market, with trading quieted in recent days in Asia, a seller of West African crude told Reuters earlier this week.
By Tsvetana Paraskova for Oilprice.com
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