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Middle East Oil Prices Rise As Asian Demand Recovers
By Viktor Katona - Dec 13, 2020, 7:00 PM CST
As the United States and Europe falter under the weight of ever-increasing coronavirus cases and a general lull in markets, the health of the Asian crude market has arguably pulled crude prices and differentials away from the adverse ramifications of second wave coronavirus. China, India, Japan, South Korea; all of them are increasing their crude intake, increasing refinery runs and riding the waves of healthy refining cracks. At the same time, the early December OPEC+ meeting has tainted the upbeat sentiment a bit – the parties’ agreeing to meet every month to realign on the correctness of the production quotas and their splits infers a certain inherent fragility of the deal looking into 2021. The previous 6-month covenant had the benefit of providing strong binding guidelines for the market, whilst monthly quarreling on the necessity of putting out even more crude into recovering economies might create (unnecessary) market reverberations. Looking at the Middle Eastern OSP increases across the board, it might come as a bit of surprise to learn that, even though Chinese demand has been an instrumental element in Asia coming back to the crude market, its crude imports in December 2020 have palpably slowed down. This is due to a combination of concurrent developments – 2020 import quota limits running out and state refiners are approaching winter maintenance season. The prospects for January-February 2021 indicate further growth after the current lull, with West African grades showing considerable growth amid tepid interest in Europe (all of Angola’s spot January cargoes are going to China). As middle distillate cracks remain profitable enough, the usual suppliers of heavy barrels to China are the ones to suffer for now, as demonstrated by Brazil and Colombia seeing their exports decreasing for the third consecutive month already.