Asian crude mart expected to remain under pressure

Asian crude mart expected to remain under pressure

SINGAPORE (Reuter): The Asian crude market is expected to remain under pressure over the next week as refinery maintenance shutdowns coupled with refinery run cuts reduce demand, traders said yesterday.

Only heavy sweet Asian crudes, burned directly for power generation in north Asia, would see continued support from summer utility demand, traders said.

July trading for the heavy grades such as Indonesian Minas and Widuri was expected to be completed by this week, with Japan and China soaking up most of the barrels, traders said.

In contrast, the lighter crudes were languishing in a bearish market, as limited buying interest from refiners has left July barrels uncommitted, even as buyers start looking for August supplies.

Refinery maintenance shutdowns in Indonesia and Australia have kept the July light Asian crude market amply supplied.

Indonesia's 200,000 barrel-per-day (bpd) Balikpapan refinery, which refines mainly light crudes was scheduled to start maintenance on 10 July, while Shell Australia will shutdown a 74,000-bpd crude distillation unit (CDU) at its 115,000-bpd Geelong refinery from 12 July.

Weak refinery margins also led to refinery run cuts by Shell Singapore and Japan's Cosmo Oil, exacerbating the weak crude market.

New Zealand's Maui condensate and light sweet Harriet/Cooper Basin crudes from Australia, which would normally be consumed in Indonesia and Australia, were left stranded in the spot market.

These cargoes, including an end-July cargo of Malaysian Tapis crude were likely be rolled over into August as most refiners' July requirements have been covered.

But traders expected limited improvement in the August market, since more than 500,000 bpd of arbitrage crudes from the west are scheduled to arrive in that period, competing with Asia's usual crude supplies.

The bearishness seen in the July Middle East market, especially the Oman and Abu Dhabi crudes, was likely to extend into the August market which should fully start trading this week, traders said.

"The market was at a standstill in the last week as sellers wanted higher prices, but buyers wanted the discounts done in July," said a western trader.

"The buyers have moved their bids to more reasonable levels now, but the market is still very weak," he said

Last week, sellers of Oman crude were offering around MPM -20 cents, while buyers were holding out for MPM -50.

The depressed Middle East crude market was reflected in the price of Dubai crude offered in the Indian Oil Corporation's (IOC) August purchase tender that was awarded on Friday.

The Dubai cargoes offered ranged from levels at par to first half month quotes to discounts of 7 cents under first-half month quotes.

In IOC's last purchase tenders for May, June and July cargoes, offers of Dubai were at premiums over the first half-month quotes.

Some traders had hoped that the end of peak maintenance shutdowns in Japanese and Korean refineries would help strengthen the August market for Middle East crudes, but were doubtful now.

"Asia's refining capacity has increased by one million barrels per day in the last year, which means an additional demand of one million barrels per day of crudes, either from West Africa or from Middle East," said a western trader.