* China ramps up crude processing as margins improve

* Asian refiners back from maintenance

* Strong demand push Oman, Russian ESPO, Sokol to 11-mth high

* Supply tight as Europe, Africa, U.S. crude to Asia uneconomical

By Florence Tan

SINGAPORE, June 16 (Reuters) – Asian refiners are paying the highest premiums for Middle East and Russian crude oil in about a year, due to firm demand and more costly imports from the West, industry sources said.

High prices could prompt refiners to draw down inventories, tightening supply buffers even as the Organization of the Petroleum Exporting Countries (OPEC) and their allies including Russia gradually ease supply cuts.

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Several popular grades in Asia, such as Oman, Russian ESPO and Sokol crude, are trading at the highest premiums in 11 months against Dubai quotes, according to trade sources and Refinitiv data. <OMA-1Mdubsw-A><ESPO-DUB><SOK-DUB>

The spread between first and third month cash Dubai prices is at its widest backwardation since pre-COVID levels in January 2020, Reuters data showed, indicating strong demand for prompt supplies.

Spot crude prices in Asia are a leading indicator for global markets as several of the world’s top importers are located in the region. Asian refiners also typically buy oil two months in advance, earlier than other regions. “Demand is rising and supply is falling short of expectations, leading to a strong market that is being reflected in physical markets now,” Energy Aspects analyst Virendra Chauhan said.

Major refineries in top importer China are processing more crude as domestic margins have improved after a government crackdown on some fuel imports, refining and trade sources said. Some independent refiners have also resumed crude purchases for July and August arrivals, anticipating a second batch of import quotas soon, they added.

Refineries in other parts of Asia are also cranking up after maintenance to meet demand during the peak summer season in the northern hemisphere, including during the Tokyo Olympics which start in July, they said.

However, importing crude oil from Europe, West Africa and the United States is currently uneconomical as Brent’s premium to Dubai has widened while spot premiums for grades such as Angola’s Cabinda and Kazakhstan’s CPC Blend have climbed, the sources said. <DUB-EFS-1M><BFO-CAB><BFO-QUA><BFO-CPC><BFO-AZR>

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“Arbitrage from West Africa and Europe to Asia could decline and increase demand for regional barrels,” a North Asian refining source said, referring to oil from Asia Pacific, Russia, and Middle East.

While Asian refiners will buy crude to meet baseload demand, or the minimum amount of crude required for a refinery, they are likely to draw down inventories for incremental supplies, the industry sources said.

“If everybody only buys baseload crude, (prices in) the market may be toppish soon,” a second North Asian refining source said.

Energy Aspects expects a global crude stocks draw of 2.7 million barrels per day (bpd) in the third quarter, compared with 1.4 million bpd in the second quarter.

“OECD inventories are back at the 2015-2019 average so OPEC+ have achieved their aim,” Chauhan said.

“The only way to stop prices from rising is a rise in OPEC+ supply, but they are waiting for clarity on Iran before taking any action.”

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(Reporting by Florence Tan; Editing by Ana Nicolaci da Costa)

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