Chinese new quotas impacts physical markets

China’s 4th and last batch of crude imports is impacting far east crude grades, as ESPO cargoes traded 6$ above the Dubai benchmark yesterday for December loading. It is likely that most ESPO loadings will sail to China, as independent refiners are looking for light sweet distillate rich grades that require little natural gas consumption and yield a lot of diesel. The recent natural gas price spike, combined with a rally in middle distillate and heavy residuals against gasoline prices, has boosted the profitability of players with a simple refinery configuration. Asian refiners are able to easily turn a profit in the current margin environment, and we should see increased crude demand in the weeks to come, particularly in marginal markets such as West Africa.