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Middle East Oil Producers Struggle As Asian Demand Crumbles

Budgets depleted, an increasingly indignant population, and the prospect of confronting the same old COVID-19 scare once again – this is the reality that we have woken up to this September. The Asian oil markets have been buzzing with talks of 2nd wave coronavirus implications, all the while for some countries (such as India, already the second-highest globally in terms of total cases) the first wave has still not reached its peak. Against such a background little wonder that the overall sentiment for this autumn has become dimmer and grimmer by the day, as Brent has slipped back below $40 per barrel, floating storage is back in the game on the back of strengthening contango. Looking at the specificities of current Asian products’ markets and Middle Eastern producers’ recent OSP moves, the sentiment that the real trough is still waiting out there for us cannot but overwhelm the mind.  

The main factor underlying the price drop is the weakness in overall Asian demand. Refining margins remain remarkably depressed, jet fuel crack spreads have been negative across the Asia Pacific for almost a month already, whilst gasoil and low-sulfur marine fuel margins have squandered all the advances of the past 2 months. If an industrial monster like Reliance’s 1.2mbpd Reliance Refinery is running at a mere 75% (across India the average rate has been around 70% in August), you know that trouble is brewing. This is especially noteworthy as summer generally…

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