Asia oil/products: Crude rallies strongly, products fail to keep pace

Quantum Commodity Intelligence – Middle East crude prices surged higher Tuesday after the OPEC+ talks broke down, leaving a potential shortfall of supply in the 2H of the year, while refined products generally lagged the crude rally.

Dubai cash for September delivery was at a 32-month high of $75.85/b on July 6 (1630 Singapore time), up $1.20/b from Monday, while DME Oman futures for September settled $76.09/b at the Asia close, up $1.34/b.

Saudi issued its keenly-watched OSPs, applying steep increases to reflect the market structure. Differentials for Arab Light for Asia were hiked by $0.80/barrel to Dubai/Oman +$2.70/b, while Arab Medium was also increased by $0.80/b to +$2.15/b.

Arab Super Light was increased by $1/b to +$3.85/b, while Extra Light was up $0.80/b to +$2.70.

Cash Brent (BFOE) for August was assessed at $77.69/b, up $1.39/b from Monday's Asian close, while the Brent/Dubai spread widened to +$1.84/b as Brent futures rallied strongly.

Renewed Brent strength and the steeper backwardation also sent the EFS soaring to $4.33/b, up over $0.40/b on the day.

Products

Naphtha was heard traded at $709/mt CIF Japan for H1 September loading dates while H2 September was bid at $701/mt. Quantum assessed at an average September price of $706/mt CIF Japan, leaving the crack at $135/mt versus cash Brent on what sources said was strong petrochemical demand as olefin margins rise.

In the gasoline market, Quantum heard of three deals – two for RON 92 and one for RON 95. Two trades were heard – at $86.98/b and $87/b FOB Singapore. With Quantum assessing at $86.96/b for later loading dates, that pushed the benchmark RON 92 crack towards $9.50/b. One RON 95 deal was heard at $89.50/b, although it was offered again at that level. With the flat price assessed at $89.45/b, the spread between the two grades has blown out to almost $2.50/b.

Jet differentials narrowed slightly, although they remained heavily discounted to swaps in a contango market, a dynamic that indicates immediate weakness but optimism for growth. One trade was heard at -$0.40/b FOB Singapore, leaving a flat price of $79.92 FOB Singapore, up $1.12/b on the day on firmer crude, but the crack weakened.

Diesel 10ppm cash differentials were heard unchanged, with one trade for 10ppm at a $0.10/b discount to the underlying swaps. Distillate demand, however, remains sluggish, leaving flat prices at $82.77/b FOB Singapore, up more than $1/b on the day, but sending cracks lower. At $5.12/b, cracks gave up all of Monday's gains.

Fuel oil demand relative to the curve remains firm, however, driven by stronger bunker sales, sources said. Cash differentials for marine fuel were valued between $0.50-0.75/mt above underlying swaps, more or less stable on the day, while 380cst was valued at $1.25/mt and 180cst at $2/mt relative to the swaps. But with higher crude comes lower cracks and the swaps market failed to move in line with crude. Flat prices for marine fuel were marked at $550.50/b, up $4/mt on the day and leaving the crack at a four-day low of just above $2/b.