Asian oil refiners target European crude as Saudi output falls

-Asia’s oil refineries have been rushing to buy up crude cargoes from Europe after Saudi Arabia’s surprise decision to unilaterally cut output in February and March.

Unipec, the trading arm of China’s biggest oil refiner Sinopec Group, bought four North Sea crude shipments in a pricing window organized by S&P Global Platts on Thursday. The buying spree helped trading on the window to hit the busiest in at least 12 years and took Unipec’s purchases this week to seven consignments.

Saudi Arabia, the world’s top oil exporter, surprised global oil markets on Tuesday by announcing a plan to go it alone with output cuts of 1 million barrels a day through March when many traders anticipated increased supply. The kingdom then hiked its so-called official selling prices, or OSPs, for crude sales to Asia. Next month, its flagship Arab Light grade will be the highest since August.

“It is down to the Saudi cut and the consequent rise in their February OSP to Asia,” Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd., said of the increased buying.

It’s not just the North Sea where a flurry of interest has been observed. Asian traders have probably already bought four or five cargoes of CPC Blend crude for February loading even before next month’s loading program is released. For January, they took seven shipments of the grade that’s shipped from a Russian terminal in the Black Sea.

There have been signs across the oil market of traders expecting tighter supplies following the Saudi cuts. The shape of the Brent futures curve returned to backwardation earlier this week, meaning more immediate prices are trading at premiums. The structure indicates physical-market tightness. At one point, it was trading at the strongest since March.