Singapore — US crude exports to Asia are set to swell over March and April as a drop in freight rates makes US cargoes more competitive against barrels from Asia or the Middle East, according to market participants and shipping fixtures Friday.
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Industry sources indicated that US crudes continued to attract the attention of plenty of Asian buyers as various flagship North American export grades have been consistently trading at a discount against comparable light and medium Persian Gulf grades.
"Arbitrage economics remain highly favorable for more US crude purchases. The latest OPEC cut seems to be keeping the Dubai price complex relatively expensive," a senior official at Seoul-based Korea Petroleum Association said.
Freight rates from the US Gulf Coast to Asia have fallen by about a third since early-December, making the case for greater loadings of US crude to the region.
Around 17 VLCCs have been fixed to load crude from the US Gulf Coast to Eastern destinations for February-loading cargoes, shipping reports showed, with many more likely booked outside of reported fixtures.
For January-loading cargoes, 16 VLCCs were seen carrying US crude from the US Gulf Coast to Eastern destinations, according to Platts vessel tracking software cFlow and shipping reports.
December-loading US crude cargoes, meanwhile, saw only seven VLCCs leave the US Gulf Coast for the East, cFlow and shipping reports showed.
Among fixtures seen, US producer Occidental Petroleum had four VLCCs for the USGC-East route for February-loading cargoes -- Landbridge Majesty on February 7, Hong Kong Spirit over February 20-25, DHT Colt on February 24 and Maran Ares on February 27.
South Korean refiner SK Innovation is slated to load three VLCCs -- Apolytares on February 5, Nasiriyah on February 9 and New Horizon over Februray 15-17 -- all for delivery to South Korea.
Other charterers of February-loading cargoes for the USGC-East route include Vitol, Equinor and South Korea's GS Caltex, among others.
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Traders said the US' medium, sour Mars crude was currently being offered at premiums in the high-$3s/b to Dated Brent on a CFR North Asia basis, while light, sweet crudes like WTI Midlands were being offered at premiums in the low-$2s/b to Dated Brent on a CFR North Asia basis.
WTI Midland, Eagle Ford and Mars are among the most popular grades typically sent to Asia, though there are the occasional cargoes of Southern Green Canyon, Bakken and White Cliff crude, among others.
S&P Global Platts assessed WTI Midland crude at an average premium of $2.09/b to Platts Dated Brent on a CFR North Asia basis for January, down from an average premium of $2.74/b to Platts Dated Brent on a CFR North Asia basis for December.
"January seemed more shut than February [loading] cargoes," one trader said. "Mars looked completely shut. Sweet still marginally open."
The outright price spread between Platts WTI MEH, or Magellan East Houston, assessments on a CFR Northeast Asia basis and Abu Dhabi's light sour Murban crude assessments on a Northeast Asia delivered basis averaged minus 77 cents/b in January, down from minus 13 cents/b averaged in December, S&P Global Platts data showed.
WTI Midland has also been trading at considerable discounts to Asian low sulfur crudes such as the Malaysian basket crude grades.
Against WTI Midland's average premium of $2.09/b against Dated Brent on a CFR North Asia basis for January, Malaysia's Kimanis crude was assessed at an average premium of $5.24/b to Platts Dated Brent on a FOB basis.
Northeast Asia and India typically take the bulk of US crude deliveries to Asia, though small volumes are also taken by Southeast Asian countries such as Thailand, Malaysia and Singapore.
While market participants expect China to resume imports of US crude soon, company officials at Unipec, the trading arm of Chinese oil major Sinopec, said the company's purchases remained minimal, though specific volumes were unclear.
"We have not started massive purchasing [for US crude oil] yet," a Unipec executive said.
The executive declined to say how much they have bought and when the first US cargo for the year would arrive in China, adding that they were still watching for progress on US and China trade talks.
China ended the year with zero shipments from the US in December, the second month of no US crude imports in 2018 in addition to October, due to US-China trade tensions.
However, its total supplies of US crude in 2018 posted a sharp increase of 60.4% on the year to 247,624 b/d.
January is also unlikely to see any arrivals from the US, and the first cargo of US crude in 2019 is expected to arrive in February, cFlow data indicated.
Similarly, several refining sources from Sinopec said they have not received any offers for US crude.
"We expect that Unipec would offer some US crudes in February for May delivery," a Guangdong-based refining source with Sinopec said.
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