Asia's Middle East crude market may pick up as demand recovers
* Nearly 1 million bbl of refinery capacity returns in May
* Warmer weather to boost fuel oil demand from power plants
* Heavier grades may fare better on lower OSPs, fuel oil cracks
SINGAPORE, March 13 (Reuters) - Asia's Middle East crude market may strengthen when trading in May barrels begins this week, supported by refineries in Asia returning from maintenance and fuel oil demand from power generators during the northern hemisphere summer.
About a million barrels per day of refinery capacity that was offline for maintenance will return in May, according to Reuters data.
"The peak turnarounds are over and margins are looking good now, so the fundamentals may support some demand," said a trader at a refiner. "I see the market rebounding."
Consultants JBC Energy estimated in a report that refinery maintenance in Asia would peak at just over 2 million bpd in April, fall to 1.4 million bpd in May and drop further to 620,000 bpd in June. That analysis suggests demand is set to gradually pick up from May onwards, as refiners buy crude for refining units coming back on line the following month.
Warmer weather in the northern hemisphere may also boost demand for electricity for air-conditioning, which translates into more demand for crude to be processed into fuel oil for oil-fired generators.
Japan will see mostly normal to hotter-than-average weather this summer, the Japan Meteorological Agency said in February, indicating demand for electricity may be higher than usual there from June to August.
Heavier grades such as Upper Zakum may fare better than lighter grades, due to a rise in fuel oil cracks in the past few weeks and lower official selling prices (OSPs), traders said.
Product cracks and overall refinery margins are widening as well, which may prompt refiners to increase runs.
Stronger buying from China could also underpin May trading.
Data shows that commercial crude inventories in the world's second largest oil consumer have dropped month-on-month for the four straight months through January, adding to expectations that Chinese refiners could surface to replenish stocks.
The spot differentials for April cargoes traded last month weakened on poor demand from refiners, while the cash market was pressured lower by heavy selling in Dubai partials by trader Arcadia Petroleum.
Crudes from Qatar and Abu Dhabi National Oil Co (ADNOC) traded at lower premiums or deeper discounts than in trading for March cargoes, reflecting the absence of big buyers.
In the cash market last month, Arcadia Petroleum sold 244, or 85.9 percent, of the 284 April partials traded in February, delivering 11 of the 12 Oman cargoes that were declared, data collated from traders and Platts showed.
That helped to push April Dubai cash prices to $106.75 per barrel by the end of last month, down from $110.80. Since trading in May partials started at the beginning of March they ranged between $104.75 and $106.90 per barrel.
The total number of partials traded for April was the highest since 270 were traded in April 2010, according to data provided by Platts. The record is 434 partial traded in September of 2007. (Reporting by Ramya Venugopal; Editing by Manash Goswami and Tom Hogue)
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