Asian crude oil prices likely to tumble

Asian crude oil prices likely to tumble

SINGAPORE (Reuter): Asian crude prices are expected to fall this week, hit by the results of the May buying tenders from India and Bangchak Petroleum Plc, traders said yesterday.

The price decline will not be so much the result of the prices of the tender awards but the crude that failed to be awarded, traders said.

India failed to award any Dubai crude, which flattened the backwardation in the Dubai paper market to near contango, while Bangchak did not award any Oman, shaving five cents off the differential.

While a cut in the Dubai/Oman spread this week might help support Oman's spot market differentials, the Dubai backwardation was disappearing as far forward as July.

India usually awards Dubai in its monthly tenders, but the country's appetite for the crude appears to be waning.

In its April buying tender it took two Dubai cargoes, although four or five were offered.

At that time traders said the IOC's contract to buy 3.6 million barrels of Iraqi crude would reduce its demand for Dubai.

But in the May tender traders said Dubai was unable to compete with offers of Suez Blend.

May Dubai, valued at US$1.25/$1.40 below Brent, failed to match offers of Gulf of Suez at dated Brent less $2.50 to $2.70. India awarded five Gulf of Suez cargoes.

Bangchak on the other hand, awarded for the first time Al Shaheem crude from Middle East, traders said. Bangchak rejected four offers of Oman crude, its normal crude diet, the best of which was priced at MPM -3 cents, a refinery source said.

That left the Oman cargoes hanging over the May market and traders doubted there was demand for the grade to meet the supply.

They suspected sellers would hold out for the release of Oman's official selling price for March to see if that would help perception of the crude's value.

As Oman has traded at a discount for the May trading month, sellers would be expecting a cut in the official selling price, or MPM, and a narrowing of Oman's premium over Dubai, which currently stands at $1.05 per barrel, traders said.

A flurry of Minas deals late last week and early this week has helped support the Minas market, with the differential coming in to ICP -10 cents from ICP -15 cents.

However, while the Brent/Dubai remains relatively narrow -- it was nearer $2.00 in early March -- Indonesian grades are likely to be displaced by West African crude imports in China and South Korea.

The West Africa-to-Asia VLCC freight has risen to Worldscale 60 from 52 over recent weeks, but that still leaves ample room for West African imports, traders said.

"From what I can see there is demand moving into May loadings," one West African seller said.

Cabinda is now sold out for April loadings, one major said. China has taken three or four April loading VLCCs of Cabinda, displacing some Minas.

An expected surge in China's demand for crude imports in 1997 to possibly higher than 30 million tons means that much of its requirements could well be met from outside of Asia.

"We are going from a situation where demand in volume is such that people need to procure big volumes of crude oil, which local market can not give," the major said.