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Analysis: Southeast Asia set to open door for regular US crude inflows

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Analysis: Southeast Asia set to open door for regular US crude inflows

Highlights

Vietnam, Indonesia buy US crude for very first time

Brunei crude official selling price differential on lengthy uptrend

WTI trades at steep discount to Malaysian Kimanis crude

Singapore — Southeast Asia looks set to take US crude oil on a regular basis, with Vietnam and Indonesia making their very first purchase of light sweet WTI crude in recent weeks, signaling that the buyers are also keen to take advantage of favorable US-Asia arbitrage economics.

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The majority of US crude flows to Asia have been directed to refiners in South Korea, Taiwan, India and Japan over the past few quarters, though Southeast Asia has so far provided limited outlets for US crude suppliers and traders.

South Korea especially stood out so far this year in Asia, receiving close to 30 million barrels of US crude in Q1, up fivefold from the same period a year earlier, latest data from state-run Korea National Oil Corp. showed. In Southeast Asia, Thailand was the only importer of US crude in Q1.

However, with official selling prices and spot differentials for various light sweet Southeast Asian crude grades rising sharply this year, major refiners in the region have recently joined the South Korean bandwagon to actively capitalize on the attractive US price tags.

Vietnam's 148,000 b/d Dung Quat refinery has received its first cargo of US crude, an official at refinery operator Binh Son Refining and Petrochemical told S&P Global Platts.

The Suezmax vessel Almi Horizon arrived at Dung Quat port on April 29 carrying 950,000 barrels of crude loaded from the US Gulf Coast, Platts trade flow software cFlow showed.

Indonesia's state-run Pertamina also bought its first cargo of US crude in the recent trading cycle. A company source said the cargo of light sweet WTI Midland crude will arrive in Indonesia in early June.

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LOFTY REGIONAL OSPS, WTI'S DISCOUNT

Vietnam mostly imports sour crude from Kuwait to feed its new Nghi Son refinery complex, while the country also buys some sweet crudes from neighboring producers for the Dung Quat refinery amid declining domestic low sulfur crude production.

Brunei was the main external source of sweet crude for Vietnam in Q1, with Hanoi importing around 1.3 million barrels from the oil-rich sultanate, according to latest customs data.

However, Vietnam could completely shift focus to the US from Brunei from Q2 onwards, as the cost of light sweet crude in North America is seen sharply lower than low sulfur Brunei grades, industry and trade sources said.

A senior BSR official told Platts that the company bought the US crude cargo because of its price competitiveness compared with other crude grades and its compatibility with the refinery.

Brunei Shell has set the OSP of flagship Seria Light crude lifted in January, February and March at $63.56/b, $68.03/b and $70.12/b, respectively. Brunei Shell is a 50-50 joint venture between the Brunei government and Shell.

With Platts Dated Brent averaging $63.20/b in Q1, Seria Light's OSP differential to the light sweet crude benchmark for the quarter averaged a premium of $4.03/b. The premium averaged $3.53/b in Q4 last year and $2.44/b in Q3 2018.

The light sweet Brunei grade's OSP differential against Platts WTI Magellan East Houston [MEH] on a CFR Asia basis was assessed at an average premium of $1.7/b in Q1, sharply higher than the average premium of 40 cents/b in Q4 last year.

Indonesia is also a regular buyer of light sweet crude from Brunei and Malaysia, and Southeast Asia's biggest oil consumer could save on import bills by switching to US supplies.

The outright price spread between WTI MEH on a CFR Asia basis and Malaysia's flagship Kimanis crude on a FOB Sabah basis averaged minus $2.95/b so far in Q2. The spread averaged minus $2.92/b in Q1 and minus $2.55/b in Q4 2018.

"It's really all about taking that first step. Now they have made the very first [US crude] deal, more trades could easily follow and why not..if it's much cheaper?" a light crude and condensate trader based in Singapore said.

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

-- Andrew Toh, andrew.toh@spglobal.com

-- Ada Taib, ada.taib@spglobal.com

-- Edited by Nurul Darni, newsdesk@spglobal.com

-- Edited by Gary Gentile, newsdesk@spglobal.com