Asia crude market likely to remain weak

Asia crude market likely to remain weak

SINGAPORE (Reuters): The Asian crude market was expected to see further downward price pressure this week, with colder weather in Japan unlikely to translate into greater demand, traders said yesterday.

Suppliers were hoping for Chinese demand to emerge in the short term in the wake of the Lunar New Year holiday, while an Indian Oil Corp (IOC) tender award of three Dubai cargoes was expected to offer some support to the Middle East market.

But some deals for Asian crudes was further undermining sentiment and the demand/supply outlook remained bearish, traders said.

News of a United Nations proposal to increase Iraqi oil sales was unlikely to affect traded differentials in Asia, but was likely to undermine outright prices if Brent falls sharply.

"The Iraq news will affect Brent, but it won't make a difference to the actual prices of crudes in Asia," said one trader.

U.N. Secretary-General Kofi Annan proposed on Sunday that Iraq be allowed to increase oil sales to $5.2 billion from the current $2 billion.

Currently Iraq is only allowed to sell oil worth $2 billion under its existing "oil-for-food" deal with the U.N.

March Brent on the Singapore International Monetary Exchange (SIMEX) was quoted at $15.71/$15.95 per barrel on Monday in response to the news, down from the London Brent close of $15.96.

On Asian crudes, traders saw a deal for February heavy sweet Indonesian Minas crude done at a discount of a few cents to the official Indonesian Crude Price (ICP) as a sign of continued weakness in the market.

Traders said that this was the first February Minas trade done at a discount.

Prior to the deal, February Minas traded at premiums of around 10 to 15 cents to the ICP.

Traders said that high stocks in China kept refinery buying at a minimum ahead of the Lunar New Year, in contrast to previous years, when Chinese demand normally surged just before the New Year.

A mild winter was also keeping Japanese buyers at bay, adding further downward pressure to the market.

This is despite reduced supplies from Indonesia and the movement of a substantial volume of Asian crude to the U.S.

"The Japan weather is turning colder now. But we still haven't seen any rise in demand," said one Japanese trader.

Traders said that unsold cargoes of heavy Vietnamese Bach Ho crude for February was also reflective of the weak overall demand in Asia.

But the bulls were now hoping for a possible increase in Chinese demand following the end of Lunar New Year holidays, to provide some support to the market, traders said.

"Traders are watching Chinese demand," said a Japanese trader. "China bought very little before the New Year, so maybe they will buy more after the New Year."

China businesses have effectively been closed since Monday last week for New Year celebrations.

Traders said the IOC award of three cargoes of Dubai crude in its March buying tender should offer some support to an otherwise weak Middle East market.

"I think March Oman will trade around MPM -10 to -15 cents, compared to -20 cents last week," said a western trader.

The IOC awarded a Dubai cargo to Caltex at 32 cents under March first half month quotes.

It awarded a cargo each to Total [TOTF.PA] at 48 cents under March second half month quotes, and to Mobil [MOB.N] at 60 cents under March second half month quotes.

In addition IOC also bought three very large crude carriers (VLCC) of Nigerian Qua Iboe crude.