Premiums for Abu Dhabi's light sour Murban crude surged to near four-month high following the emergence of belated demand from Asian buyers as a wide Brent/Dubai spread and rising freights affect economics of alternative arbitrage barrels, sources told S&P Global Commodity Insights Nov. 24.
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At the Asia close Nov. 23, the January IFAD Murban spread versus January Dubai futures was assessed at a premium of $8.99/b, the highest since July 29 when it was assessed at a premium of $11.32/b, S&P Global data showed.
Demand for light sour crudes has remained firm this month largely due to heating requirements emanating from the North Asian winter freeze, some sources said.
"The Japanese and Koreans are feeding the market with the bids [for light sour crude]. They [are] not keen to buy much of the mediums [sour crudes but] they put their hands on the light grades," a trader with a Japanese trading house said.
The recent surge in values reflect robust buying interest that continues to emerge towards the end of the month, sources said.
"Think [trade] volume [is] thin [for Murban] and buyers [are] still emerging [but] not much available in seller's hand [at this point] I think," a trader in North Asia said.
Apart from Japanese and South Korean buyers, some Middle East light sour crudes were heard sold to Thailand Nov. 23 further boosting values for the grades, the same trader said.
Meanwhile, flows of arbitrage crudes such as WTI Midland, seen as an alternative to Murban, have also been reduced to a trickle amid skewed economics and soaring freight rates, traders said.
"Brent-Dubai [spread] also widening more [and] shutting all arbs," a trader in Singapore said.
In November so far, the Brent/Dubai Exchange of Futures for Swaps, or EFS, averaged $8.42/b, compared to $6.92/b for the whole of October, 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.
Additionally, shipping freight rates for long haul cargoes continue to rise hurting the flows of such grades to Asia, a shipbroker in the West said.
"People are scared [of] high freight," the broker said.
Premiums on the Platts US Gulf Coast to China route have hit a record high this year when it was assessed at $54.63/mt at the Asia close Nov. 21, the highest since April 27, 2020 when it was assessed at $55.56/mt.
Light, medium sour crude spread widens
While Murban crude premiums have risen, premiums for medium sour crude however, have weakened this month amid lackluster Asian demand, resulting in the widening of the light and medium sour crude spread to a more than 14 year-high.
At the close Nov. 23, the spread between Platts Murban and Platts Dubai was assessed at a premium of $7.23/b, the highest in 2022 so far, the data showed. The spread was last higher on Aug. 28, 2008 when it was at $7.66/b, the data showed.
Demand for medium sour crude weakened as COVID-19 infection continues to affect the world's largest crude oil buyer, China, crushing demand for oil and products with no immediate relief in sight.
New and daily locally transmitted COVID-19 infections were reported at 28,883 cases Nov. 22, up 984 on the day and near the previous record 28,973 cases reached in April, S&P Global earlier reported.
The impact has been most visible on demand for medium sour grades such as Oman and Upper Zakum where spot differentials continue to slide.
The Dubai cash/futures spread - a tracker of spot market activity - fell to its lowest value for the year when it was assessed at a premium of $1.27/b at close Nov. 23, S&P Global data showed.
While the lower prices have prompted some end of the month purchases from Thailand, China and India, the overall sentiment for medium sour crudes remains weak, a trader in Singapore said.
Some prompt purchases of January-loading Oman and Upper Zakum crude were heard made at premiums of around $1/b to the Platts Dubai crude benchmark.
"Still not really providing any support," the trader in Singapore said referring to the recent purchases of Upper Zakum and Oman by India and China.