Rare spot sale of Abu Dhabi's Umm Lulu grade depicts state of crude glut in Asia

Singapore — A rare spot trade for Abu Dhabi's Umm Lulu crude on the crude spot market in Asia on Friday highlighted the difficulty sellers of Middle East crude are experiencing in finding homes for excess barrels, market participants told S&P Global Platts.

The cargo, offered on the Asian crude spot market by Spanish oil company Cepsa on Friday morning, was purchased by China's Unipec later in the day, according to market participants.

"It's rare for Cepsa to [make such an] offer, a really rare case," said a crude trader with a Japanese firm, pointing to the fact that Umm Lulu cargoes are not typically available to the wider market in Asia.

Casting a wider net

Cepsa's initiative to put its cargo on the wider spot market underscored how sharply crude demand has plunged in Asia, as storage tanks fill up and refiners cut back on run rates through April, May and June, said traders.

Cepsa could not be reached for comment.

The trade was priced on a floating basis typical for the Middle East crude market, at a premium of 10 cents/b against the official selling price for Umm Lulu in June.

Even so, traders said the price looked too expensive given how other comparable light crude grades were trading in discounts for the June cycle.

"I wouldn't lift it," said a crude trader based in Singapore.

By comparison, a June loading cargo of Murban -- another Abu Dhabi grade close in quality to Umm Lulu -- was traded in the spot market at a discount of around 40 cents/b to its OSP earlier this week.

Since the grade first started being exported from the UAE in late 2018, cargoes of Umm Lulu have rarely been seen traded freely on the spot market. ADNOC, Cepsa and OMV are understood to have private arrangements with specific end-users in Asia that buy the grade off the three sellers each month.

The buyers are understood to be refiners based in Japan, India and Southeast Asia. With around five cargoes produced every month, sellers of the grade have not felt the need to market the crude beyond their existing monthly arrangements, said traders.

Background

Umm Lulu is a light sour crude grade with an API density of around 39 degrees and a sulfur content of 0.70%. It is produced from the SARB and Umm Lulu oil fields in Abu Dhabi, and is loaded off Zirku Island near the emirate.

Cepsa holds 20% equity in Umm Lulu production, amounting to roughly one 500,000-600,000 barrel cargo each month. Austrian oil company OMV holds another 20%, with Abu Dhabi retaining the remaining 60% controlling stake.

Cepsa's first crude cargo of Umm Lulu was exported to India back in December 2018, Platts records showed. The company is owned by Mubadala Investment Co. of Abu Dhabi, and was awarded the Umm Lulu concession in February 2018 alongside two other satellite fields for a 40-year period.