Australia's heavy sweet crude premiums likely unaffected as key oil fields near end of field life

Spot cash premiums for Australia's heavy sweet crudes are expected to continue tracking low sulfur marine fuel oil cracks, despite a tightening supply outlook as three oil fields off Western Australia's coast approach the end of their field life in 2025, according to sources.

Australia's Santos plans to halt production at three oil fields off the coast of Western Australia in 2025 as the assets near the end of their field life, sources told S&P Global Commodity Insights.

The company has submitted an environment plan (EP) to the Australian regulator Nopsema to decommission production at the Ningaloo Vision FPSO, which produces oil from the Van Gogh, Coniston and Novara fields.

Production rates are declining, with the end of field life currently projected for the first half of 2025.

"I think [the closure of Van Gogh] has already been [priced in], since [it] was offline until last month," a trader said, adding that it is unlikely the spot cash premiums of other Australian heavy grades will be supported once Van Gogh production ceases.

One cargo of Australia's Van Gogh crude is heard scheduled for February loading, although the exact dates have yet to be finalized, market sources said, adding that it will likely be the second-to-last or final cargo before the oil field reaches the end of its field life.

Van Gogh crude was last heard traded for November loading at levels similar to November-loading Pyrenees crude, which sold at a premium of $13s-$14s/b to Dated Brent, FOB, according to market sources. Further details of the trade could not be ascertained.

This comes as a 550,000-barrel cargo of Vincent crude, scheduled for H1 January loading and held by Japan's Mitsui, was heard sold to an unknown buyer at a premium of $8s/b to Platts Dated Brent crude assessments, FOB, according to market participants.

In the previous trading cycle, a December-loading barrel had traded at a premium of $12s/b against the same benchmark, reflecting a significant drop in premiums for the grade.

The fuel-oil-rich Vincent crude, with a typical gravity of 19 API and a sulfur content of 0.15%, has been a key feedstock for producing International Maritime Organization-compliant marine fuels due to its high flash point, alongside Australia's Pyrenees and Van Gogh crudes.

Platts assessed the second-month LSFO swap crack against Dubai crude at a near five-month low of $5.36/b on Dec. 10, the lowest since July 18, when it was at $5.35/b, Commodity Insights data showed.

The crack continues to trend downward, averaging $6.28/b as of the Dec. 11 Asian close, compared with $7.56/b in November and $8.30/b in October, the data showed.

The Asian LSFO market remains under pressure due to an ample availability of near-term supplies, while downstream bunker demand has stayed relatively lackluster.

Platts assessed the Singapore marine fuel 0.5%S derivatives front-month time spread -- an indication of near-term market fundamentals -- at $1/mt at the Dec. 11 Asian close, rebounding slightly from a 35-month low of 75 cents/mt on Dec. 10. This was the lowest since it touched 15 cents/mt on June 30, 2021, Commodity Insights data showed.

The West-East arbitrage window, which has been quite viable in recent weeks, is currently driving steady shipments from Europe, adding to regional stockpiles. However, market sources are concerned that China's import demand may gradually cool off in the coming weeks as the new year brings updated export quotas for Chinese suppliers.

Platts assessed the Singapore marine fuel 0.5%S cargo's differential over the Mean of Platts Singapore Marine Fuel 0.5%S assessment at a premium of 75 cents/mt at the Dec. 11 Asian close, compared with 14 cents/mt on Dec. 10, which was the lowest level since April 16, when it was at a discount of 72 cents/mt, Commodity Insights data showed. The cash differential has slumped 77% so far in December.

The weakness was also reflected further down the derivatives curve, with the M2-M3 (February/March) standing at $1.75/mt at the Dec. 11 Asian close, rebounding from $1.65/mt on Dec. 10, which was the lowest since June 30, 2021, when it was at $1.35/mt.