Russian Urals in focus amid sanction scare as Middle East crude prices bite

Asian refiners are tracking prices of Russia's Urals crude amid fears of sanctions as strong demand continues to boost values for various Middle East grades pressuring their margins, sources told S&P Global Platts.

European refiners, the baseload buyers of the medium, sour crude, have been shying away favoring sweeter barrels due to better refining economics and also because of the potential sanctions on Russia.

The ongoing feud between Russia and Ukraine has raised fears of sanctions being imposed on the former while further aggravating supply constraints, sources said.

Urals CIF Rotterdam was assessed at Dated Brent minus $3.645/b on Feb. 15, recovering somewhat from near term lows but still around the lowest level since the pandemic-led demand collapse of summer 2020, Platts data showed.

Despite pressures on arbitrage economics, the grade has found some Asian demand, according to traders, which may be all the more important for sellers if sanctions are imposed.

"I think maybe Asia will be the choice [for Urals]," a trader in Singapore said. "As long as buyers can arrange finance it can come to Asia."

Asian refiners were eyeing arbitrage barrels from the West especially for medium, sour grades such as Mars and Urals although a widening spread between Brent and Dubai has closed the arbitrage window for now, sources said.

At the Asian close Feb. 15, the April Brent/Dubai Exchange of Futures for Swap, or EFS, was pegged at $5.94/b, up from $4.78/b at close on Feb. 11, data showed. A wider EFS makes crude priced against Dubai more economically attractive compared to Brent-linked ones.

China mainstay for Asian demand

Even with sanctions threat looming, China could continue to buy Russian grades, traders said.

Unipec and independent refineries have been the key buyers for Urals in Asia, although Shandong independent refineries have not been buying the grade in the past few months, the traders noted.

"Even if it [Urals] comes, China will be the only the buyer of Russian grades. It won't be hidden, [it] will be on the table," the same trader in Singapore said.

Just last week, state-owned trading company Unipec was heard to have bought an April arrival cargo, at a premium of high $4/b against Platts Dubai, according to a Chinese refinery source.

Unipec had previously put together two VLCCs of February-loading Urals to take to China, combining six Aframax parcels, according to Urals traders.

But, with fast changing differentials and a relatively long journey to Asia made more costly by steep backwardation in Dated Brent, the likelihood of Chinese buyers stepping in to clear more unsold cargoes was unlikely in current market conditions where no sanctions are in place, sources said.

That situation could change, however, as there were plenty of Urals cargoes left available for eastern buyers after several European refiners filled up with North Sea barrels instead.

"It seems there are grades of A class and B class. [Refinery] margins are ok but refiners are just buying expensive North Sea grades," said one trader in Europe.

Though the sanctions fears were still there, a prominent European buyer of the grade confirmed that it was still able to buy and sell Urals.

Middle East medium, sour prices soar

Meanwhile, a strong Middle East sour crude complex continues to weigh on Asian refiners looking to fulfill their crude requirements this month, traders said.

Prices for various Middle East crude grades have soared this month leaving buyers gasping for options, sources said.

At the Asia close Feb. 15, the Dubai cash/futures spread hit a record high when it was pegged at a premium of $4.08/b, data showed.

"[On Platts] window there is pressure so the market is looking for direction," a trader with a North Asian refinery said.

Rising prices of light, sour crudes such as Murban has turned buying interest towards medium, sour grades instead, the trader with the North Asian refinery said.

"If Murban [price] goes up then Oman will go up then UZ [Upper Zakum price] on [Platts MOC] window will go up," the trader said.

At close on Feb. 15, the April IFAD Murban differential to April Dubai futures was pegged at $6.01/b, crossing the $6/b for the first time in February, data showed.

Spot trade for April loading barrels is expected to commence with eyes on the outcome of Qatar Energy's tender offering its Al-Shaheen crude, premiums of which are seen as indicators of medium, sour grades.

While results of the tender are due this week, some pre-tender trades were reported with Al-Shaheen cargoes heard bought by Japanese buyers at premiums of around $4.40/b-$4.45/b to the Dubai benchmark.