China and Japan have recently intensified purchases of crude oil on the spot market, driving spot premiums for some grades to their highest in several months and signaling that Asia’s physical demand for crude is rising despite the crisis in India, where fuel consumption is slumping.
Rising premiums, as well as deepening backwardation of the Dubai futures structure, are pointing to continued recovery in oil demand in the most important oil-importing region. Backwardation is the state of the market signaling tighter supplies with prompt prices higher than those further out in time.
The bullish signals of demand from China and Japan add to the signs that Europe’s demand has also started to recover as most of the largest economies are re-opening.
In the UK, for example, fuel sales surged earlier this month to their highest level since the first lockdown in March last year, according to government data cited by Bloomberg.
In Asia, India’s demand has unsurprisingly dropped in the past weeks, with gasoline sales estimated down to a one-year low and diesel consumption dropping to the lowest in seven months in the first two weeks of May.
But refiners in China and Japan have been raising crude oil purchases from the Middle East and Russia.
According to Bloomberg, Rongsheng Petrochemical Co of China bought as much as 12 million barrels of oil from Middle Eastern producers Iraq, Oman, and Abu Dhabi. This was the biggest purchase in seven months.
Japan’s refiners, for their part, have bought at least five oil cargoes of the Al-Shaheen grade from Qatar at the biggest premium this year, according to data compiled by Bloomberg.
By Tsvetana Paraskova for Oilprice.com
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