(Robert Campbell is a Reuters market analyst. The views
expressed are his own.)
By Robert Campbell
NEW YORK Feb 23 Asian crude oil buyers
are starting to balk at increasingly costly Brent crude oil. The
sustainability of the current rally hinges on Asia recovering
its for Atlantic basin crude.
The Brent-Dubai exchange of futures for swaps (EFS) quote
DUB-EFS-1M, the premium holders of Asian benchmark Dubai swaps
must pay over their postion to switch into Brent, is signalling
a growing weariness with the recent spike in Brent prices.
The EFS premium has risen nearly $2 a barrel in the last
month and is now at its highest level since November.
(Chart: http://r. reuters.com/dym76s )
One of the key supports for Brent in recent weeks has been
heavy Asian buying of West African and North Sea barrels but the
growing EFS premium could deter some marginal buying even as
worries over the impact of the worsening impasse between the
West and Iran persist.
The softening of Asian buying pressure on Brent comes as the
Singapore gas oil swaps curve has fallen into a modest contango,
suggesting near term diesel fuel demand is being more than
adequately met by existing supplies.
(See chart: http://r. reuters.com/fym76s )
With Europe on the brink of recession and U.S. oil demand
seemingly incapable of growing, the resilience of Asian
consumption growth patterns is a critical factor for this year's
To be sure, gauging Asian oil demand is tricky and measuring
it by buying patterns in the Atlantic basin market is imprecise.
Long sailing times from the Atlantic to Chinese refineries
and the imperative of planning around these variables mean that
Asian buyers are not as sensitive to short-term price trends
than other consumers.
But given the likelihood that oil demand in the developed
world will be lower than expected this year ,given the sharp
increase in global oil prices, the market is increasingly
dependent on Asian demand growth.
IRAN PRICE FLOOR
Nevertheless, the prevailing belief among oil investors is
that crude cannot go down by much given long-term supply
constraints, geopolitical risks and the worsening standoff with
Even if Iran is able to continue selling all of its oil,
which seems to have been the blueprint of Europe's leaders when
they conceived their plan to ban imports of Iranian oil, the
episode has sharply increased worries over potential future
disruptions to oil exports.
But if that was the plan, it is not unfolding that way.
With a separate, and seemingly uncoordinated tightening of
unilateral U.S. sanctions against Iran putting pressure on
foreign banks that do business with the Islamic republic, Asian
buyers are taking steps to curb their purchases of Iranian oil.
Japan, China and India, which collectively buy approximately
45 percent of Iran's oil exports, have vowed to cut their
purchases by at least 10 percent.
Indeed, Japan may cut even deeper, by as much as 20 percent,
if Japanese media reports are accurate.
And increasingly, despite denials from Tehran, signs are
emerging that Iran has struggled to sell all of its crude.
Reuters reported earlier on Thursday an Iranian tanker has
anchored in an offshore storage location near Indonesia in a
It may be that increased Saudi Arabian crude oil supplies
are meeting Asian demand, allowing the Iranian barrels to be
displaced with relatively less pain than might otherwise be
Of course that still cuts into OPEC's spare capacity buffer
and Saudi Arabia's growing dependence on its own oil production
for summer electricity supplies has raised expectations that
Saudi oil exports are set to decline in the coming months.
But all of this begs big questions about the current rally.
If Iran really is failling to sell all of its oil, and if Asian
buyers really are cutting their purchases why is the Brent-Dubai
EFS premium rising?
And if Asian oil demand growth remains robust, why is the
Singapore distillates curve falling into contango. Is it simply
a decline in demand from other regions, notably Europe, for
Asian gas oil exports or is it a sign of slower Asian demand
(Editing by Marguerita Choy)