Crude outlook: Heavy grades tightening

Crude outlook: Heavy grades tightening

SINGAPORE (Reuters): The Asian crude market is expected to remain steady this week, as the limited July supplies of heavy Indonesian grades are facing good demand, traders said yesterday.

Traders said expectations of tighter availabilities of Middle Eastern crude oil as a result of the OPEC cutbacks were leading some Asian refiners to increase their purchases of regional grades, helping keep Asian crude prices supported.

"One or two refiners are buying a lot of Far East crudes, because they feel it is economical, since Middle East supplies will be less," one Japanese trader said.

Currently, only Saudi Arabia and Qatar have informed term buyers of reductions in July term liftings, but traders said they expected to be notified by other Middle East producers soon.

Last week OPEC members pledged to cut 1.355 million barrels- per-day (bpd) for a year from July 1, although skepticism remained on whether all the pledged cuts would be realized.

But the cutbacks are expected to affect mainly Middle East supplies, as few Asian refiners are likely to be drawn to reducing their production, traders said.

Indonesia, Asia's only OPEC member has said that it would abide by the OPEC cutback agreement.

But non-OPEC producer Malaysia said on Monday it had not been asked by OPEC to reduce its 630,000 bpd output.

Indonesia's export allocations for July, delayed since the middle of the month, was finally announced last week, with heavy sweet Minas reduced to 28,300 bpd, compared to 40,000 bpd in June.

Heavy sweet Widuri allocations for July was set at 7,000 bpd from 15,000 bpd in June, while Cinta volumes were unchanged month on month at 9,000 bpd.

The smaller export volumes from Indonesia, coupled with the slight increase in Japanese demand has pushed the spot premiums of Minas to around 23 cents per barrel over the official Indonesian Crude Price (ICP), levels unseen since early May.

The improved fundamentals in Asian crudes was also being reflected in the spot levels of Vietnam's heavy sweet Bach Ho crude.

Bach Ho, which has been trading on the spot market at discounts to its official selling price (OSP) since March, moved up to trade at parity to its OSP end last week.

Traders said Vietnam's tender to sell August Bach Ho which closed on Thursday also attracted bids at a small premium to the OSP.

In the Middle East crudes, traders expected August trading to start in earnest this week.

They said heavy to medium grades such as Oman would be supported, but lighter grades could face limited price rises, due to ample stocks of middle distillates in Japan.

They also said that despite the overall lower Middle East supplies following OPEC cuts, the heavy to medium grades are expected to reap the benefits of a tighter market, since producers would prefer to maximize production of the higher valued lighter grades.