Demand for West African crude strengthened in August as refiners in China and India increased buying, helping push regional crude differentials higher amid firm refining margins, according to the Organization of the Petroleum Exporting Countries.
West African crude differentials rose firmly during the month, supported by strong buying interest from China and India and robust refining margins, OPEC said in its September Monthly Oil Market Report.
Chinese buyers sought prompt supply availability, while some Indian refiners postponed maintenance, increasing spot demand for crude, according to the report. Demand was particularly strong for medium-sweet grades because of their high middle-distillate yields.
The stronger Asian buying came as global crude markets tightened, with OPEC reporting higher spot prices in August amid stronger refinery intake and increased crude purchasing, particularly from Asia.
OPEC said renewed Chinese buying provided additional support to physical crude markets as higher clean-product export allowances and attractive export margins encouraged Chinese refiners to increase throughput, draw down inventories and purchase additional prompt cargoes.
Higher Chinese refinery runs and stock drawdowns encouraged prompt crude purchases, although the recovery of CPC Blend exports, ample availability of light sweet crude and increased Middle Eastern supplies limited price gains.
The report said the approaching autumn refinery maintenance season and elevated freight costs also weighed on spot buying.
The stronger demand for West African grades reflects the importance of crude quality to refiners as they seek supplies capable of producing higher volumes of middle distillates. OPEC said demand was stronger for medium-sweet grades, which offer high middle-distillate yields.
The development came as the OPEC Reference Basket rose $3.45 a barrel in August from July to average $86.44 a barrel. North Sea Dated increased $7.28 a barrel to $90.67, while Dubai rose $10.53 to $87.71.
OPEC said crude oil spot prices rose on average in August, supported by persistent oil-flow disruptions in the Middle East, strong refining margins and a continued recovery in global refinery intake.
The report also noted that hedge funds and money managers became more bullish on oil prices during the month, with combined ICE Brent and NYMEX WTI net-long positions rising 12% between July 28 and August 25.
For West African producers, the stronger demand from China and India points to continued importance of Asian refiners in the region’s crude export market, particularly when demand is concentrated on grades that offer favourable yields of middle distillates.
