Asia oil/products: Crude retreats, distillate cracks collapse on China

Quantum Commodity Intelligence - Middle East crude prices Wednesday registered a daily loss for the first time in a week, while distillate cracks collapsed as China looked set to issue a fresh batch of export quotas to the market.

Dubai cash for November delivery was assessed at $92.70/b for 14 September (1630 Singapore time), $1.75/b lower on the day, while DME Oman futures were down $1.63/b at $92.74/b for the Nov22 contract.

Dubai partials were last traded at $92.44/b, while Oman partials were bid at $92.75/b, leaving little in the way of value between the key medium sour grades, including Al Shaheen and Upper Zakum.

The key M1/M3 spread (Nov22/Jan23), used by National Oil Companies in OSP calculations, has been steady for since the start of the month, assessed at $5.64/b on Wednesday, while the one-year curve retreated $0.70/b on the day to £12.95/b.

ICE Brent futures for Nov22 were valued at $93.05/b at 1630pm Singapore, down $2.12/b from the previous Asia close as the Nov22 Brent/Dubai spread narrowed back into $0.37/b. 

Meanwhile, VLCC freight rates are set to build on their two-year highs despite Iranian oil remaining sidelined, broker Fearnleys said.

Spot rates from the Middle East Gulf to East of Suez increased last week to around $43,500/day but were seen increasing further this week.

Products

The naphtha cash market had a tight bid-ask spread appear during the window as the 1H November cargo laycan was bid by BP at $675/mt CFR Japan and offered by Chevron at $676/mt without a trade being booked. For 2H November, Vitol bid $673/mt. Those levels built a backwardation into the cash market that had been absent for several sessions, with the flat price up $1/mt at $672.25/mt. With that, the spot crack versus Brent rebounded to a one-month high as it gained $16.76/mt and hit a one-month high of -$6.29/mt.

Gasoline trading was subdued compared to a busy day for the rest of the barrel, with no fresh activity in the cash market. Moves in paper cut $3.70/b from Quantum's 92 RON outright to $99.06/b, with the spot crack to Brent down $1.55/b to a one-week low of $6.49/b. Market expectation was that Beijing was set to issue a fresh batch of gasoline export quotas in the coming days. And data from Fujairah showed a 4% rise in light end stocks to a three-week high of 7.4 million barrels.

Jet fell along with the wider selloff in distillate markets, hit by fresh export quotas from China, Beijing's zero-Covid strategy, and what looks set to be a busy typhoon season for North Asia. Offers in the cash market were seen from Unipec and Aramco, with the latter offering a 15-20 day ahead cargo aggressively and cutting $0.75/b from Quantum's cash assessment to leave it at $1.14/b FOB Singapore. The flat price was down $11.80/b to $120.07/b, with the spot crack to Brent falling $9.65/b to a one-month low of +$27.50/b. That left the east-west EFS down further still, falling $11.72/mt to a fresh three-month low of -$112.82/mt.

The diesel paper market came off hard, slumping from Tuesday's highs as expectations of increased exports from China moved the market to the downside. It was a busy paper window where prices jumped around for September and October heading into the close, with the print seeing double-digit falls from Tuesday. In the cash market, two deals were booked as Shell sold cargoes loading to Vitol and Total. Cash differentials were cut as the Vitol deal was taken as value, with Quantum assessing 10ppm down $0.38/b at $1.64/b. The flat price was down $11.69/b at $129.56/b, with the spot crack to Brent falling $9.54/b to a one-month low of $36.99/b and the diesel east-west EFS down $11.08/mt to a four-month low of -$58.73/mt. That came as news emerged that China is expected to issue a fresh 1.5 million mt gasoil export quota in the coming days.

Marine fuel 0.5% sulfur liquidity was low for a second day in the swaps market, coming as Typhoon Maifu bore down on China and left bunkering operations at Zhoushan suspended as a precautionary measure. Cash was more active, however, with five cargoes changing hands as refiner Phillips 66 sold to Gunvor and Maersk in all transactions at a $5/mt FOB Singapore premium to the curve. With cash differentials having come off in recent sessions, Phillips 66 was also an aggressive seller in the floating storage market without finding any buy-side interest. Those deals lifted Quantum's cash assessment $1.39/mt to $1.91/mt. The outright was down $14.34/mt at $662.50/mt, with the spot crack to Brent up $0.07/b at $3.44/b. Separately, China issued a fresh 2.75 million mt batch of fuel oil export quotas.

High sulfur fuel oil cash differentials came under further pressure as China issued fresh export quotas on Wednesday. Aramco was particularly active on 380 CST October paper, securing the equivalent of at least 110,000 mt in the final three minutes of the window. In the cash market, Vitol sold two cargoes with Gunvor buying on an offer for loading 29 September-3 October at $381/mt FOB flat and PetroChina paying similarly for a 4-8 October cargo. Offered hard, the 180 CST cash differential was down $0.13/mt at $2.34/mt, while 380 CST slipped $3.09/mt to a fresh low of -$7.35/mt. The 180 CST flat price was down $7.66/mt at $422.367/mt, with 380 CST falling $12.50/mt to $382.58/mt. Those moves came as data from Fujairah showed residual fuel stocks up 12% last week at a 15-month high of 13.4 million barrels.