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Russian Sokol premium nears 5-year high on medium sweet crude tightness in Asia, wider EFS

Singapore — The premium for Far East Russian Sokol crude oil has soared to a near five-year high amid a dearth of medium sweet crude in Asia and a wider Brent/Dubai spread, market sources said Wednesday.

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A 700,000-barrel cargo of Russian Sokol for loading over July 7-13 was reported sold by India's ONGC to an oil major, at a premium of around $6/b to Mean of Platts first-line Dubai assessments in June, CFR North Asia, according to market sources.

"Sokol is really expensive this month, but people are willing to buy as there is supply tightness in the market," a Singapore-based trading source said.

In comparison, June-loading Sokol cargoes traded at premiums of around $4.3-$4.4/b to Dubai, trade sources said.

Volumes of Malaysia's medium sweet Kimanis crude are expected to drop sharply over its July program, as field operator Shell carries out maintenance and upgrade works on the offshore facility, crude traders told S&P Global Platts. Shell could not be immediately reached for comment.

Only three cargoes of the middle distillate-rich crude are expected to load over July, down from a typical monthly program comprising nine to 10 cargoes of 600,000 barrels each.

Traders said they do not expect any spot availability of Kimanis in Southeast Asia for July, as all three cargoes are expected to be taken into refining systems by their respective equity holders.

Russia's middle distillate rich, sweet crude grade could be viewed as a close alternative to the Malaysian regular, with sufficient supply from a 10-cargo strong monthly loading program to satiate end-users in the region, traders said.

"Kimanis feeds refiners with ultra-low sulfur regional sweet demand and its shortage will surely have an impact on grades like Sokol," another crude trading source said.

LIMITED SOKOL PRODUCTION

Meanwhile, supply of Sokol has been capped at 10 cargoes, or approximately 7 million barrels/month of production since June, providing additional support to price differentials for the grade for Asian end-users, according to trade sources.

The middle distillate-rich grade typically sees around 12-14 cargoes, or between 8.4 million to 9.8 million barrels for loading in a month.

For July loading, India's ONGC and Russia's Rosneft each have been allocated two cargoes. Other equity holders Sodeco and ExxonMobil have three July-loading cargoes each, according to the program seen by Platts.

WIDENING EFS LENDS SUPPORT

A widening spread between Brent and Dubai is the third factor contributing to higher premiums for the Dubai-linked grade, traders said.

The second-month Brent/Dubai Exchange of Futures for Swaps pushed past a key price point of $3/b at the beginning of May -- the first time in seven months as Brent prices rallied on geopolitical tensions.

A wider Brent/Dubai spread makes Dubai-linked crudes relatively cheaper compared to Brent-linked ones. Buyers could potentially pay higher premiums for Sokol against Dubai and still get a cheaper deal overall than for a similar Brent-linked crude.

The front-month July EFS stood at $3.35/b as of 4:30 pm Singapore time (0830 GMT) on Tuesday, the highest since September 27, 2018. Then, it was assessed at $3.45/b, Platts data showed.

Platts assessed July Sokol crude at $72.95/b on Tuesday, or at a premium of $5.90/b to Dubai.

--Avantika Ramesh, avantika.ramesh@spglobal.com

--Eesha Muneeb, eesha.muneeb@spglobal.com

--Edited by Geetha Narayanasamy, geetha.narayanasamy@spglobal.com