Murban values on the ascent as arbitrage window stays shut

The differentials of Abu Dhabi's flagship Murban crude to the S&P Global Platts Dubai benchmark have risen sharply as similar arbitrage grades such as WTI Midland and Forties turn increasingly expensive, various sources said.

The price of light, sour Murban crude has climbed steeply this month with the differential to Platts Dubai pegged at $5.90/b at the Asian close Feb. 4, Platts data showed.

In February so far, Platts Murban vs Platts Dubai futures averages $5.73/b compared to $3.65/b for the whole of January.

Flow of similar arbitrage grades such WTI Midland and Forties remain capped, leaving Asian refiners fewer options to fulfill their crude requirements, traders said.

"The arbitrage grades are too high for the Asian [refiners] to buy [so] that's really supporting Murban value," a trader in Singapore said.

Murban values could continue to rise this month as the arbitrage opportunity in the weeks ahead looks bleak, another trader in Singapore said.

"Globally, three hubs [for] sweet [crude] are very tight. [On] Murban strength, I see Midland as a driver [and] Midland arbitrage to Asia is shut," the second trader said.

Indicative levels for US's WTI Midland for North Asia delivery have risen amid low inventories in the US and a steep backwardation in the market structure.

On Feb. 8, Platts assessed the differential for delivered WTI Midland crude to Northeast Asia at a premium of $7.85/b to Platts Dubai, steady on the day, equivalent to a premium of $4.56/b to Dated Brent, DES Yeosu.

"The arbitrage should be shut now, [premiums] are so expensive but [they] make sense," said a Northeast Asia-based end user.

US crude oil inventories fell 2 million barrels in the week ended Feb. 4, according to the American Petroleum Institute, media reports indicated.

Analysts surveyed by Platts said Feb. 7 that they expected total US commercial crude stocks to rise around 100,000 barrels to 415.2 million barrels during the week. The US Energy Information Administration will release its inventory data later on Feb. 9.

In the North Sea, market participants are keeping an eye on the arbitrage to Asia for Forties, however, the backwardation is considered a big hindrance to that picking up again.

"Will need to see if the East has some demand [for Forties]... the Dated backwardation certainly does not help," said a North Sea crude trader.

Even so, a VLCC of Forties loaded on Feb. 2 is expected to take the North Sea grade to Ningbo, China, Platts cFlow trade-flow analytics software showed.

Brent/Dubai EFS widens

With the arbitrage window mostly shut and the spread between Brent and Dubai widening, spot Asian demand could pivot towards its traditional baseload barrels in the Middle East.

The Brent/Dubai Exchange of Futures, or EFS, averages $5.18/b for February to date, compared to $3.87/b for the whole of January, Platts data showed.

The EFS is often tracked as an indicator of North Sea low sulfur crude value versus Middle East high sulfur crude, and a wider EFS makes crude priced against Dubai more economically attractive compared to Brent-linked ones.

"Dubai +$6 [for Murban] is so expensive. Considering that EFS is now well around $5.20/b, Murban should come down to low $5/b versus Dubai," a trader with a North Asian refinery said.

Though spot activity for April-loading crude is yet to kick off, eyes are on how buying interest for Murban shapes up especially from Japanese refiners, who favor the light, sour grade, sources said.

Higher prices will pressure buying interest though refiners will still have to fulfill their baseload requirement, the trader with the North Asian refinery said.

"We have less options to take but calling for increment of March-loading term barrels would be one thing," the same trader with the North Asian refinery said.

Last month, ADNOC was heard to have issued full term allocations to most Asian buyers for March with Saudi Aramco also expected to do the same, Platts reported earlier.

Refining sources also tempered the sentiment with a hint of optimism, stating that the price for Murban is unlikely to breach the $6/b mark to Dubai.

"I don't see Murban surging above $6/b for the moment as there are excess barrels like Totsa's March [tender]," the second trader in Singapore said. "Demand is always there given [the] distillates crack [but the] question [is] what level makes sense."

Oil major TotalEnergies was heard to have recently sold via tender some prompt March-loading Upper Zakum and Murban crude to Indian buyers.