In the LOOP: Narrowing Dubai/LOOP spread dampens US sour crude exports

Narrower price spreads between US crudes and Dubai-based crudes have limited arbitrage opportunities to export US crude to Asia recently, S&P Global Platts data shows. However, some deals continue to get done as US crude delivered to Asia remains at a slight discount to competing grades.

In the first 29 trading days of 2019, the spread between LOOP Sour and Dubai has averaged about $2.60/b. That is compared with an average spread of $2.75/b during the same period a year ago.

As Dubai's premium over LOOP decreases, US-based sour crudes become less competitive with comparable Dubai-based grades in export markets. The Dubai/LOOP Sour spread reached its widest point of the year so far on January 11 at $5.11/b. Its narrowest point of the year came January 25 at 90 cents/b.

The LOOP Sour-Dubai spread has been mostly narrowing since the fall as US Gulf Coast sour crude differentials have soared in recent weeks. US crudes, particularly sour grades, have jumped on concerns over the supply of medium and heavy sour crudes due to OPEC production cuts and uncertainty arising from US sanctions on Venezuela.

The 10-day moving average between LOOP Sour and Dubai was $2.40/b on Monday compared with $3.60/b one month ago and $4.40/b two months ago. One US-based crude buyer for an Indian refinery said that US crude differentials are too expensive at the moment to make export deals work.

"Prices are too high," the crude trader said. "The arb is closed." While the window of opportunity to move US crude is limited, some deals continue to get done, likely because values for delivered US crude to Asia remain at a discount to competing grades.

On Monday, S&P Global Platts assessed LOOP Sour CFR North Asia at $62.13/b. It is still at a small discount to comparable values for competing grades as Dubai was assessed at $63.10/b, and Basrah Light at $62.80/b.

Buyers in Asia may be looking to alternatives to expensive VLCCs in order to move crude from the US. ATMI on Friday was heard to have fixed the Suezmax Sonangol for a US Gulf Coast to West Coast India voyage in February. Oxy also arranged for a VLCC to carry US crude to China in March. No US-to-East fixtures were heard done Monday.