Oil Sinks as Signs of Tepid Crude Demand in Asia Multiply

A supertanker-load of one of the key North Sea crudes has recently sold in Asia at a very low price - below the spot North Sea price and below the price of a Middle Eastern grade - in a sign that Asian demand for crude continues to be softer than anticipated.

A cargo of 2 million barrels of Forties, one of the grades underpinning Dated Brent, was sold last week to South Korean refiner GS Caltex Corporation at a price that was $3.50-$4.00 a barrel below the North Sea spot price, traders with knowledge of the deal told Bloomberg on Tuesday. 

The Forties cargo was bought at a premium of around $2.50 a barrel to the Dubai benchmark. This premium came in cheaper than the price of Abu Dhabi's Murban grade, according to Bloomberg's estimates.

North Sea crude hasn't been in much demand in recent months in Asia, amid lackluster overall demand and cheaper alternatives such as crude from the Middle East and the United States.

Signs emerged on the physical oil market earlier this month that the weeks of bullish trades of North Sea crude grades that underpin the international benchmark Brent are over, according to Bloomberg.

Trading giants Gunvor and Trafigura bought and bid for dozens of North Sea crude cargoes in June, driving up the Brent Crude benchmark to above $86 a barrel. 

The Brent Crude benchmark is underpinned by the value of North Sea crudes Brent, Troll, Ekofisk, Forties, and Oseberg, as well as the U.S. West Texas Intermediate Midland crude, which was added to the international benchmark in June 2023.

Last month's buying of the North Sea crudes by the major commodity trading houses sparked an immediate rise in benchmark Brent prices as market sentiment changed to bullish after trading giants bid heavily for these crude grades.

It looks like these cargoes are now struggling to find buyers amid soft demand for North Sea crude in Asia and Europe.

In the meantime, WTI crude futures continue to sell off, falling into the $76 handle as concerns about demand in China, and now also India, in which the monsoon season impacts crude demand. Rystad Energy writes that "crude prices in the next few days will largely hinge on economic news from China, the likelihood of US rate cuts, and how negotiations progress in the Middle East."

By Tom Kool for Oilprice.com

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