Asian refiners seek alternative crudes as Middle East sour crudes prices rally

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Rising prices for staple crude oil from the Middle East have caused Asian
refiners to seek alternatives crudes from other regions.

The spread between front-line cash Dubai versus same-month Dubai swap was
assessed at a premium of 70 cents/b on Friday, the highest since July 31, 2015
when it was at a premium of 85 cents/b, S&P Global Platts data show.

On a monthly basis, the spread between front-line cash Dubai versus
same-month Dubai swaps has risen to average a premium of 46 cents/b in
October to-date, almost double the average premium of 21 cents/b for the whole
of September.

The Middle East sour crude market has strengthened this month as Asian
end-user demand remained strong due to the winter season in North Asia and as
product margins remained relatively healthy, while opportunities for arbitrage
cargoes from the West remained limited.

On the supply side, Asian refiners are faced with tightening crude
exports from Middle East as Saudi Aramco and Abu Dhabi National Oil Co. have
announced term allocation cuts to customers as part of their commitment under
OPEC’s November 30, 2016, deal to reduce production by 486,000 b/d and 139,000
b/d, respectively, from last October levels.

The stronger Middle East crude structure as well as rising cash
differentials have caused Asian refiners to seek alternative grades this week.

Taiwan’s Formosa Petrochemical Corp. this week issued a tender seeking a
730,000 barrel cargo of ESPO Blend crude for delivery in December. The tender
closes on Friday with same day validity.

The Taiwanese refiner issued the rare tender for the Far East Russian
grade to “check the economics of buying ESPO” in view of the current strength
in the Middle East sour crude market, according to a source close to the
matter.

Formosa typically issues tenders seeking Middle East sour crudes such as
Oman or Banoco Arab Medium crudes.

Earlier in the week, Sri Lanka’s Ceylon Petroleum Corp., or Ceypetco, has
also issued a tender seeking a crude “similar or better than” Murban crude for
delivery over December 1-5 or December 4-5.

At the same time, the refiner issued a tender seeking a 700,000-barrel
cargo of Murban crude for delivery over December 1-5 or December 4-5. Both
tenders closed on October 11 and were valid for three days after the close.

Prior to the issue of these tenders, Ceypetco was heard to have cancelled
a tender seeking a 700,000-barrel Murban crude cargo for delivery over
November 29-December 3 as the offer prices received were higher than
expected, a source with direct knowledge of the deal told Platts.

Meanwhile, traders on Friday noted that fewer Al-Shaheen crude cargoes
were expected for December due to shipment delays caused by an unspecified
field production issue. Last month, a total of up to 15 cargoes were available
for November-loading last month, they said.

Qatar Petroleum, on behalf of North Oil, has issued a tender offering two
cargoes of the crude, in quantities of either 500,000 barrels or 600,000
barrels each, for loading over December 19-20 and December 23-24. In contrast,
Qatar Petroleum offered four November-loading cargoes last month.

“With only two cargoes in [Qatar Petroleum’s] Al-Shaheen tender, maybe
the [medium-heavy sour crude] market will [continue to] be supported,” said a
East Asian crude trader.

–Ada Taib, ada.taib@spglobal.com

–Edited by Maurice Geller, maurice.geller@spglobal.com