Tokyo — JX Nippon Oil & Energy received an Alaskan North Slope cargo earlier this month, Japan's first ANS crude imports since May 2000 and surprising markets at a time when arbitrage economics are heavily loaded in favor of Asian and Middle Eastern crudes.
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JX took the cargo on a Suezmax tanker at its Kiire oil storage terminal in Kagoshima prefecture in Japan's southwest on Saturday, according to cFlow, S&P Global Platts trade flow software. The size of the cargo was not known.
The US-flagged Alaskan Legend, a 193,050 DWT Suezmax tanker, loaded ANS from Valdez, Alaska, on May 16, to be delivered on a CFR basis to the buyer, a market source familiar with the matter said Tuesday.
Alaskan crude was exempted from the US' 1975 crude export ban in 1995.
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JX's import of ANS crude came to light as other Japanese refiners snapped up previously restricted US crude cargoes in May, months after the US lifted crude export restrictions put in place 40 years ago.
JX's move to purchase the cargo of ANS crude had many regional traders scratching their heads as arbitrage economics this year have been heavily in favor of Asian and Middle Eastern crudes heading to the US, rather than the other way around, traders said Tuesday.
Traders said WTI's strength against Brent and Dubai crudes this year boded ill for US producers seeking to place cargoes in Far East Asia.
"Economics do not make much sense because it is cheaper to take Brent or Dubai-linked crude grades in Asia. WTI has been relatively strong compared to both Brent and Dubai benchmarks," said a North Asian sweet crude trader.
During March and April, the front-month WTI/Brent futures spread at the 0830 GMT close of trade in Singapore, averaged minus 65 cents/b and minus $1.71/b respectively. But WTI's discount was much wider during 2015, as the spread averaged minus $4.70/b last year and fell as low as minus $12.86/b on March 2, 2015.
A stronger WTI value versus the European and Middle East benchmarks typically makes Brent and Dubai-based crudes more competitive against WTI-based crudes. WTI outperforming has prompted regional suppliers in the Asia Pacific to shift their focus to outlets in North America this year.
"It clearly makes more sense to sell regional crudes to US buyers when WTI is relatively strong...it is difficult to understand, but JX probably had its own reasons for buying ANS," said another North Asian trader.
ANS is a medium sour crude with a gravity of 32.0 API and sulfur content of 0.96%, according to the latest assay report from BP.
HIGH ESPO CRUDE DIFFERENTIALS
Traders also said lofty price differentials for Far East Russian ESPO Blend crude during the late first quarter could have prompted the Japanese end-user to seek alternate crude feedstocks.
ANS sometimes competes directly with Russia's medium sweet ESPO Blend crude, depending on the seasonal demand, WTI-Dubai spreads, and freight economics.
Earlier this year, most of the April and May-loading ESPO blend cargoes changed hands at premiums in the range of $4.50-$5.50/b to Platts front-month Dubai crude assessments.
Platts assessed second-month ESPO Blend crude at a premium of $5.30/b to front-month Dubai crude on February 23, the highest level since touching $5.4/b on May 28, 2014.
"Chinese teapot refiners were actively buying ESPO back then, so maybe JX had to look for something else," the first trader said.
The Alaskan Legend, owned by BP, has not been seen trading in the spot market for tankers. The 2000-built tanker has been seen doing voyages along the US West Coast at least over the past four years until its voyage to Kiire, and the tanker is currently west of Okinawa islands en route to Singapore, according to cFlow.
Japan last imported 423,020 barrels of ANS crude in May 2000, according to Ministry of Economy, Trade and Industry data. In 2000, Japan imported a total of 7.66 million barrels of ANS crude.
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