The Asian crude market is at its peak in the release of a possible oil reserve by Reuters

By Florence Tan

SINGAPORE (Reuters) – The Asian crude market hit a two-year high this week after the release of oil reserves from major consumers around the world reduced sentiment and affected prices, trade sources said.

The administration of U.S. President Joe Biden has called on big oil buyers like China, India and Japan to consider releasing crude deposits. China said it is working to release its crude reserves, and that Japan and South Korea are examining the U.S. request.

Traders said that major consumers have cooled interest in buying possible unprecedented coordinated releases of oil in recent sessions, and as a result, the key physical price premiums sold to Asian buyers from the Middle East and Russia have weakened.

The structure of future delays – which are more expensive than immediate delivery contracts – has also been greatly reduced this week, and the tightness in the market in the short term has been reduced.

GRAPH: Brent’s decline is reduced after reaching multi-year highs

end of october https://fingfx.thomsonreuters.com/gfx/ce/lbvgnbdrzpq/BrentSpreadsNov2021.png

In addition, the price of Brent’s Dubai quotes has also cooled from eight-year highs reached earlier this month, and could make it cheaper for Asian buyers in the Atlantic basin.

“The pressure valve has been released when the EFS is taken out to Asia,” said a trader at an Asian refinery, referring to the Brent-Dubai expansion, also known as the Exchange Exchange (EFS).

“Before there was no alternative supply because the arbitration was also closed to India.”

Spot premiums for the Middle East have also fallen from multi-month highs as more supplies become available.

GRAPH: Brent’s Dubai share price drops from 2013 https://fingfx.thomsonreuters.com/gfx/ce/zdpxonglovx/Pasted%20image%201637290469546.png

Buyers from major Chinese importers have recently bought the U.S. gross tonnage from the U.S., with Gulf Coast’s sour-grade premiums below 50 cents and $ 1 below Oman’s gross for February, traders said, despite limited volumes.

“Prices were falling, so I think the threat of one (SPR release) is more effective than it actually is,” said a major Singapore retail trader.

GRAPH: Gross Middle East references https://graphics.reuters.com/ASIA-OIL/PRICES/gdvzyderwpw/chart.png

Also, spot oil premium spot premiums (Russian Sokol and ESPO) fell to $ 1 and $ 2 a barrel sold to Asia after reaching a 22-month high this week.

GRAPH: Sokol in Russia, ESPO gross premiums fall after 22 months

highest https://fingfx.thomsonreuters.com/gfx/ce/znvnekmybpl/Pasted%20image%201637290551617.png

The fall in ESPO premiums was mainly due to poor demand from China’s independent refineries after local authorities stepped up tax investigations, traders said.

“I think it scared the refineries in Shandong, so overall it’s a slowdown in the market,” a second trader said.

Consultancy Energy Aspects said fears of heavy penalties would make it more prudent for independent refineries to save more money and acquire raw materials.

In addition, China is expected to extract another 10 million and 15 million crude barrels from the eastern auction round in Zhoushan reserves, he added.

“All oil released from China’s SPR must be filled within 90 days,” Energy Aspects analysts said in a statement.

“The market should focus on where these countries will find the gross to fill these deposits given the extent to which they will find stocks.”

In Asia, refining margins have also fallen from two-year highs as profits from the production of distillates such as naphtha, gasoline and diesel have been directed after making big gains in the past two months.

GRAPH: Asian refining margins exceed 2-year highs https://fingfx.thomsonreuters.com/gfx/ce/xmvjoryzmpr/Pasted%20image%201637293372175.png

“The original strength of the market was strengthened by the situation in Europe (the power crisis),” the first trader said.

“They were all going wild with LNG, but then the new fears of COVID-19 seem to weigh on their fears a bit.”

“Everyone’s carpets have come out from under them. Most buyers should be covered by now, and China is nowhere to be found,” he added.