Asian oil buyers fret over margin impact of cancelled Opec+ meeting

SINGAPORE: Crude oil buyers in Asia are concerned that an unexpected cancellation of an Opec+ meeting to discuss a rise in output could drive oil prices even higher and hurt their margins.

They are now awaiting Saudi Arabia’s official selling prices (OSPS), which were delayed until after the Opec+ meeting and set the tone for prices of a majority of Middle East crude sales to Asia, to assess the oil market’s direction.

Brent crude oil prices rallied to above $77 a barrel, the highest since 2018, on Monday, after ministers of the Organization of the Petroleum Exporting Countries and its allies, a group known as Opec+, called off oil output talks and set no new date to resume them.

“The Opec no decision and resulting high price will have a short-term negative impact on Chinese refiners, as they will see margins pinched due to often lagging domestic fuel prices,” a Singapore-based crude oil trading executive said.

“That could force them to cut runs, which should lift margins again and bolster their crude oil buying,” the source added.

China is the world’s secondlargest oil consumer and top overall importer.

The talks were cancelled following a clash between top producer Saudi Arabia, which wants to maintain output curbs, and the United Arab Emirates, which has pushed for increased output.

No date has been set for the next Opec+ meeting, which has left some sources speculating there would be no output increase in August while others expect the group to convene a new meeting within days in order to secure an agreement.

Still, buyers in Asia are optimistic the row will be temporary. “Buyers would like prices to be reasonable and early release of additional barrels will help us ... this is more of a temporary phenomenon and would settle eventually,” a source with an Indian refiner said.

For now, Asia’s physical crude market remains adequately supplied even as global fuel demand gradually recovers from the coronavirus pandemic, refining sources said.

Asia is the top oil-consuming region, accounting for roughly 37 per cent of world use. The near-term impact on Asia’s physical market would only be marginal even if Opec+ had agreed to increase volume, because the proposed output rise appeared to be only 400,000 barrels a day, said a source with a Japanese refiner.—