Asia-Pacific sweet crudes have weakened, trading at significantly lower differentials to North Sea Dated because of limited Chinese demand and a decline in middle distillates' refining margins.
A cargo of October-loading Vietnamese medium sweet Ruby crude was sold this week at a discount of about $1/bl to North Sea Dated, the first time in four months that the grade has traded at a discount. September-loading Ruby had traded back in July at a premium of around $3/bl to Dated. Medium sweet Vietnamese Thang Long crude for October loading also traded this week at a $1/bl discount to Dated. Thang Long is sold only once every few months, but the last time Thang Long traded at a discount to Dated was in June 2016.
Vietnamese grades are not the only ones under downward pressure. Producer ConocoPhillips sold Malaysian light sweet Kimanis crude for October loading through a spot tender at a premium of 30-40¢/bl to Dated, the lowest Kimanis crude premium since May. ConocoPhillips had sold its September-loading Kimanis cargo back in July at a premium of around $3.50/bl to Dated. Malaysian state-owned Petronas also sold a cargo of October-loading medium sweet Bunga Orkid crude at a discount to Dated, the first time since March that the grade has traded at a discount to Dated.
A fall in jet-kerosine refining margins has dampened regional demand for these middle distillates-rich Vietnamese and Malaysian crudes. Asia-Pacific jet fuel refining margins returned to negative territory on 18 August for the first time in two and a half months, as a second wave of Covid-19 cases pressured aviation demand. Singapore gasoil margins to date are also lower compared with average margins in July. The absence of Chinese demand likely added downward pressure to spot values of the medium Asia-Pacific crudes, traders said. China's state-owned Unipec had emerged occasionally in the past to buy Ruby and Bunga Orkid cargoes.
It is unclear if these regional crudes will see a price rebound soon, as this may depend in part on Vietnam's domestic demand. Vietnam's 145,000 b/d Dung Quat refinery is shut for maintenance, which is scheduled to end in early October. The Dung Quat refinery runs mainly Vietnamese crudes, plus some imports. But state-owned Binh Son Refining (BSR) has already bought light sweet US WTI and Nigerian Bonny light crudes for delivery to the Dung Quat refinery from 15 October to 31 December, which may reduce its demand for domestic crudes.
