Asia’s sour crude demand is set to rebound from late in the second quarter as refiners return from maintenance and Exxon Mobil completes a Singapore refinery upgrade that is poised to increase its heavy oil use, traders and analysts said.
The rise in demand from some of the world’s top oil importers led by China will support Middle East benchmarks Dubai and Oman despite the prospect of more supply from OPEC+ after the group agreed to increase production from April.
“After weaker-than-expected imports from China for the beginning of the year, we expect Chinese crude demand to resume as refinery throughputs rise, along with those of other Asian refiners,” said Harry Tchilligurian, head of research at Onyx Capital Group.
“This will continue to support Dubai.”
Several major Chinese refineries, mostly operated by Asia’s largest refiner Sinopec, have shut for maintenance since end-February, curbing crude demand.
About 1.8 million barrels per day (bpd) of crude processing capacity will be offline in April, with the volume dropping to about 1.2 million bpd in May, according to Reuters calculations.
Adding to demand, Exxon Mobil said in a statement on Wednesday it is on track to complete an upgrade at its Singapore refinery and petrochemical complex this year after the pandemic delayed the project.
The multi-billion-dollar Singapore residue upgrade project at its Jurong complex will raise production of low-sulphur diesel by 48,000 bpd and its capacity of base oils, a raw material for lubricants, by 20,000 bpd.
The project is expected to start operations in the third quarter, three sources familiar with the matter said.
While the plant’s crude processing capacity remains unchanged at 592,000 bpd, traders expect the refinery to use more heavy, high-sulphur crude from the Middle East, reducing its intake of U.S. light sweet crude.
More than half of the refinery’s crude imports are currently light sweet oil from the U.S., Kpler data showed.
DUBAI VS BRENT
Middle East benchmark Dubai became more expensive than Brent crude on Wednesday, creating arbitrage opportunities for Atlantic Basin oil to head to Asia.
“The strength in the medium sour crude is thus probably the center of the strength in the global crude oil market at the moment,” SEB’s chief commodities analyst Bjarne Schieldrop said in a research note, adding that the first and third month price spread for Dubai is markedly stronger than comparable spreads for Brent and West Texas Intermediate.
However, Tchilligurian said further weakening of the Brent-Dubai spread may be limited going forward as Brent will draw some support from the exit of scheduled maintenance by European refiners.
(Reporting by Florence Tan and Trixie Yap; Editing by Rashmi Aich)