The flow of Asia’s spot Middle East crude oil trade deals slowed this week after refiners’ margins hit multi-month lows, curbing buyers’ appetite for incremental supplies, according to trade and refining sources.

Lacklustre trading this month could cause a build-up in spot crude supplies, reversing a price recovery in Middle East benchmarks earlier this month on expectations that the OPEC+ output cuts would tighten markets ahead of peak summer demand.

Spot premiums for Abu Dhabi’s flagship Murban crude loading in June slumped on Thursday to near 20-month lows after Thai refiner IRPC skipped purchases in its monthly tender. IRPC typically buys light sour crude, such as Murban and Das, that yields more gasoil.

Earlier this week, Asian refining margins fell below $2 a barrel, the lowest level since late October, dragged lower by margins on refined products such as gasoil with a sulphur content of less than 10 parts per million, which have slipped back to levels last seen in January 2022 before the Ukraine war broke out.

Asian refiners are now adjusting output to produce more gasoline than gasoil for better profits. But gasoline cracks also plunged this week, to their lowest level since mid-January, partly due to an expectation of supply increase from China.

Spot crude purchases by China’s Unipec, the trading arm of Asia’s biggest refiner Sinopec , also slowed this month. Unipec bought just two June-loading Upper Zakum crude cargoes in early April, trading sources said, well down from about 20 cargoes of Middle Eastern crude per month early this year.

The handful of spot deals done this week were also at much lower prices compared with early this month, traders said.

Taiwan’s Formosa Petrochemical Corp bought 2 million barrels of June-loading Oman at about $1.10 a barrel above Dubai quotes. Just a week earlier, the crude was priced at a premium of $1.90 a barrel, Reuters data showed.

Meanwhile, major Chinese refiners are increasing Russian crude imports which hit record levels in March, while India’s purchases have also hit all-time highs, offsetting some demand for Middle East crude.

With the weak margins, refiners are pondering run cuts although some would still be ramping up output and replenishing stocks to meet peak seasonal demand after maintenance outages in the second quarter, traders said.

Looking ahead, refiners are waiting for June official selling prices from Middle East producers to gauge the bulk of their feedstock costs and refinery margins, two Asian refining sources said, before deciding whether to lower operating rates.
Source: Reuters (Reporting by Muyu Xu; Editing by Florence Tan, Kenneth Maxwell and Susan Fenton)