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Analysis: Thailand may seek more US crude amid lofty Malaysian premiums

Highlights

Malaysian light sweet crude premiums hit record highs

Thailand cuts imports from Malaysia, hikes US crude purchases

Tight Vietnam, Indonesia supply supporting Malaysian premiums

Singapore — Lofty price differentials for light sweet Malaysian crude oil may continue to urge some of the major buyers in the region to seek cheaper alternative grades elsewhere, with Thailand slashing its imports from the Southeast Asian supplier while sharply raising US crude purchases.

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Dwindling spot market supply of light and medium sweet crudes from Indonesia and Vietnam provided ample support for the Malaysian crude complex in recent quarters, with spot differentials for Kimanis, Labuan, Kikeh grades hovering near multi-year highs.

Malaysia Kimanis vs US WTI Midland

Malaysian light sweet Kimanis crude was assessed at an average premium of $5.26/b to Platts Dated Brent crude assessments in Q4 2018, marking the highest ever quarterly premium recorded since S&P Global Platts first launched the assessment of the grade on February 10, 2016.

Malaysia's other flagship export grades also rallied in the second half of last year. Another light sweet grade Kikeh was assessed at an average premium of $5.41/b to Platts Dated Brent in Q4, its highest quarterly average spot differential in four years.

Reflecting the lofty premiums, state-run Petronas has raised the December Malaysian Crude Oil official selling price differential by 40 cents/b from November to a premium of $5.40/b to Platts Dated Brent, the highest differential since November 2014, when it was $5.70/b.

Thai refiners, one of the biggest buyers of light sweet Malaysian grades, have been actively seeking cheaper light sweet grades outside Asia in response to the high Malaysian premiums, raising its imports from West Africa and the US in recent months.

"[International benchmark] outright prices fell sharply and that's obviously good for buyers ... but paying a premium of more than $5/b in differential is too expensive," a trading source at a Southeast Asian refiner said.

Thailand's crude oil imports

Thailand imported 67,589 b/d of crude from the US in November 2018, more than a three-fold rise from 20,067 b/d received during the same month a year ago, according to latest data released by the Customs Department.

The country's crude imports from Angola during the month also surged 152% year on year to 32,096 b/d, the data showed.

In the first 11 months of 2018, the kingdom imported 36,662 b/d of crude and condensate from the US, up 124% year on year, while imports from Malaysia fell 24% year on year to 58,057 b/d.

Thailand typically looks at light sweet oil in West Africa, the Mediterranean and the US when Malaysian premiums rise sharply, and US crudes appear the most economical option for near-term trading cycles, a source at Thailand's state-owned PTT said.

The outright price spread between the Platts Kimanis assessment on a FOB Sabah Oil and Gas Terminal basis and Platts WTI MEH (Magellan East Houston) on Asia delivered basis averaged $3.51/b so far this month, Platts data showed.

In comparison, the light sweet Malaysian grade was assessed at an average premium of $2.86/b to the US crude on a CFR Asia basis in December 2018 and the spread averaged at a discount of $1.30/b in March last year.

TIGHT SOUTHEAST ASIAN SUPPLY

Market sources said the light sweet Malaysian crude complex could sustain its strength in 2019 as the overall supply pool in Southeast Asia continues to shrink with rival producers offering less and less cargoes in the spot market.

"Apart from Southeast Asian refineries, Chinese end-users have also become a regular buyer of Malaysian light crude oil. Demand will remain strong because Malaysia is the only stable supplier in the entire Southeast Asian region," a sweet crude and condensate trader based in Singapore said.

In 2018, China imported 172,655 b/d of crude from Malaysia over January-November, up 31.2% year on year. Most of the barrels were Nemina Light or Nemina Medium, which were blended in Malaysia and sold to ChemChina.

Other Chinese buyers, such as state-owned Unipec, independent Huangyuan Petrochemical and Luqing also took their lion share of Malaysia- origin crudes, including Penara Blend, Bintulu condensate, Bunga Orkid, Daerah Batu Pahat and Bentara.

Major Southeast Asian crude producers including Indonesia and Vietnam continued to witness their overall production slide in 2018, while growing domestic refining requirements added to the downward pressure on their respective export figures over the past few quarters.

Market watchers noted that Vietnam has been offering less barrels of its flagship grades including Chim Sao, Thang Long, Ruby and Bach Ho over the past several quarters due largely to decreasing production at the aging fields.

Indonesia's crude and condensate exports have been trending sharply lower as Jakarta stepped up efforts to increase dependency on domestic oil in order to slash growing energy import bills.

Indonesia's flagship light-end crude grades including Senipah condensate, Bontang condensate, Handil Mix and Attaka have almost dissipated from the Southeast Asian spot market as most of the output is processed by state-run Pertamina's domestic refineries, industry sources said.

-- Gawoon Philip Vahn, philip.vahn@spglobal.com

-- Wanda Wang, newsdesk@spglobal.com

-- Oceana Zhou, newsdesk@spglobal.com

-- James Bambino, newsdesk@spglobal.com

-- Edited by Geetha Narayanasamy, newsdesk@spglobal.com

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