Light sour crude outlook worsens on lower gasoline, naphtha demand

Singapore — Demand for light sour crude grades is expected to take a hit, pushing spot down price differentials of Middle East grades such as Murban, Qatar Land and Arab Extra Light in Asia in the coming weeks, traders told S&P Global Platts on Thursday.

Margins for products refined in higher proportion from lighter crude barrels, such as naphtha and gasoline, are expected to be some of the worst hit from global demand outage for oil products as countries shutter down businesses and people reduce working hours and social interactions to contain the spread of the coronavirus, according to analyst reports.

The related fall in product margins will result in lower runs for lighter crude barrels, including those from the Middle East, said sour crude traders based in Asia on Thursday.

Already, spot price differentials of grades such as Murban and Qatar Land have reverted to discounts despite deep price cuts offered by producers ADNOC and Qatar Petroleum, they noted.

Prices may come off further if product cracks continue to fall, the traders said.

"Murban is currently valued near Oman in the spot market, which should give you some idea of how light sour crude is faring at the moment," a Singapore-based trader told Platts on Thursday.

Murban, a light sour crude with an API of 40 and sulfur content of 0.79% typically holds a significant premium over medium crude grades like Oman, which has an API of 30.50 and sulfur content of 1.38%, according to the Platts periodic table of oil.

LIGHT CRACKS

Product spreads for naphtha and gasoline have worsened this month since the coronavirus pandemic took a greater foothold across the globe. The spread for Singapore naphtha against May Dubai futures was assessed at minus $7.32/b Wednesday, and has averaged minus $6.93/b this week, down from an average of minus $4.87/b in February.

Similarly, the Singapore 92 RON gasoline spread to Dubai futures averaged minus $3.42/b this week, down from February's crack value of $7.47/b, Platts records showed.

Gasoline crack spreads resumed their downward plunge Thursday morning in Asia, with notional front-month April 92 RON gasoline swap crack against front-month ICE Brent crude swap being pegged at a record low between minus $4.30/b and minus 4.45/b, according to brokers Thursday morning.

FALLING OIL PRICES

The fall in product margins comes despite a deep plunge in underlying flat prices for crude oil benchmarks, which should typically see product margins widen for refiners.

Second-month Dubai futures, which averaged $54.24/b over February, has fared $40.98/b over March-to-date, losing nearly 25% of its value month on month, Platts data showed.

The May Dubai futures contract continued on a downward trajectory Thursday morning in Asian trading hours, with the contract pegged at $28.97/b at 11 am in Singapore.

This was down 9% from its assessed value of $31.82/b at the Asian close Wednesday.

Oil prices lost more ground overnight amid worsening sentiment in global markets related to various governments' response to the coronavirus pandemic.

Front-month ICE Brent futures slid 13.4% on the day to its lowest since May 2003, while prompt WTI futures were down more than 24% from Tuesday and were last lower in early February 2002.