The Middle East crude market is expected to gain when spot trading for November loading cargoes kicks off this week as winter demand, healthy margins and the return of some refineries from maintenance will spur buying across grades, traders said.
While most grades are likely to trade at higher premiums to their official selling prices (OSPs) than previous months, lighter grades are likely to be more in demand because of the widening margins for naphtha and gasoil.
“The market should be strong, margins are still great and we’re entering the Q4 demand period,” said a dealer with a trading house. “Premiums on most grades should be higher this month.”
Crude buying typically jumps in the last quarter of the year as winter in the northern hemisphere, home to some of the biggest consumers of oil, pushes up demand for heating fuels.
In anticipation of higher demand, Middle East crude producers raised their OSPs for lighter grades, while those for heavy grades, used mainly for fuel oil, were cut as the margins for those products remained weak.
Strong product cracks, or the profit margin that an oil refinery can expect to make by “cracking” crude oil into products, are likely to support crude demand from refineries across Asia, traders said.
Gasoil cracks have been steadily gaining since June, rising to as much as $21.01 at the end of August, the highest since June 2011. They closed Friday at $18.72.
Refineries in Japan are also expected to restart operations in October and November following unplanned shutdowns for various reasons, spurring some buying, traders said.
JX Nippon, which shut its Mizushima refinery in July following safety checks, may restart it in October or November, while Cosmo Oil, which shut a crude distillation unit in Chiba, expects to restart it this month.
Still, traders are concerned waning demand from China could put a dampener on prices.
Implied oil demand in the world’s second-largest oil user dropped to its lowest since October 2010, according to Reuters calculations based on government data, as industrial activity in the world’s No.2 economy slowed.
Although China’s biggest refineries are set to increase the volume of crude processed following the startup of new units, the country’s two biggest refiners remain skeptical of demand revival, a Reuters poll showed.
In August, the International Energy Agency sharply cut its estimate of Chinese demand growth to 240,000 bpd for 2012, from its previous estimate of 363,000 bpd.
Sentiment, on the other hand, may be boosted by expectations of improved global oil demand after the United States’ central bank last week announced a third round to stimulus to boost its economic growth.