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Asia's sour oil demand is expected to rise in the second quarter and support Mideast crude prices

Asia's sour oil demand is expected to rise in the second quarter and support Mideast crude prices

Analysts and traders said that Asia's demand for sour crude is expected to rise from the end of the second quarter, as refiners are returning from maintenance. Exxon Mobil has also completed an upgrade to its Singapore refinery which is likely to lead to a higher use of heavy oil.

Dubai and Oman will benefit from the increased demand for oil from OPEC+, despite the fact that the group has agreed to increase its production starting in April.

Harry Tchilligurian is the head of research for Onyx Capital. He said that after a weaker than expected start to the year, the demand for Chinese crude will resume, as refinery outputs increase, along with other Asian refiners.

This will continue to support Dubai.

Since the end of February, several major Chinese refineries - mainly operated by Asia's biggest refiner Sinopec - have been closed for maintenance, reducing crude demand.

Calculations show that in April about 1.8 million barrels of crude processing capacity (bpd) will be unavailable. By May, the volume is expected to drop to 1.2 million bpd.

Exxon Mobil, in a Wednesday statement, said it was on track to finish an upgrade of its Singapore refinery complex and petrochemical facility this year. The pandemic had delayed the project.

The Singapore residue upgrade at the Jurong complex, which is worth billions of dollars, will increase production of low-sulphur fuel by 48,000 bpd, and base oils (a raw material used to make lubricants) by 20,000.

Three sources with knowledge of the project said that the project will begin operations in the third-quarter.

The refinery's capacity to process crude oil remains the same at 592,000 barrels per day, but traders expect it to use more Middle East heavy crudes with high sulphur content, and reduce its intake of U.S. sweet crude.

Kpler data shows that more than half of crude oil imported by the refinery is currently light sweet crude oil from the U.S.

DUBAI vs BRENT

Middle East benchmark Dubai became cheaper than Brent crude Wednesday, creating arbitrage opportunity for Atlantic Basin Oil to be shipped to Asia.

Bjarne Shieldrop, SEB's chief commodities analysts said that the spread between the Brent and West Texas Intermediate prices for the first and third months is significantly higher than the spread for Dubai.

Tchilligurian believes that further deterioration of the Brent-Dubai Spread may be limited in the future, as Brent will receive some support due to the scheduled maintenance of European refiners.

(source: Reuters)