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ESPO Blend crude oil premiums sink to three-month low on weak Chinese demand

Singapore — Weak demand from Chinese independent refiners in November and strong Dubai relative to Brent crude have pushed premiums of Far East Russian ESPO Blend crude oil for January loading to fresh lows, traders said Wednesday.

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The first-month January loading premium for ESPO cargoes to Platts front-month Dubai crude assessments was assessed at $2.40/b as of 4:30 pm Singapore time (0830 GMT) on Tuesday. The M1 premium was last at the same level on August 21, 2018, S&P Global Platts data showed.

Weak demand from Chinese independent refiners -- the key buyers of ESPO Blend crude -- was a key reason behind the dip in premiums, traders said.

Buying interest for ESPO Blend crude has slowed recently due to plummeting gasoline and gasoil prices in China's domestic market, according to sources at independent refineries. Some independent refineries were heard have cut run rates due to weak margins.

"Independent refineries have quite a lot of crude cargoes that have arrived since November, but prices of oil products keep falling in the past one-and-a-half month, so they are not ready to purchase more feedstock," said a trader with an independent refiner in Dongying, Shandong province.

Equity holders were heard to have sold ESPO Blend cargoes under the January loading program at premiums ranging from around $2.10/b to as high as $3.55/b to Platts front-month Dubai crude assessments.

EFS NARROWS

Sources also attributed a narrowing Brent/Dubai Exchange of Futures for Swaps as another reason behind the fall in ESPO Blend premiums this month.

The Brent/Dubai EFS, a key indicator of ICE Brent's premium to Dubai swap averaged $1.32/b in November as compared to $2.61/b in October, and had touched an 18-month low of 80 cents/b on November 29, Platts data showed.

A narrowing EFS spread makes Dubai-linked crude relatively more expensive compared to to Brent-linked alternatives.

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

--Staff, newsdesk@spglobal.com

--Edited by Irene Tang, irene.tang@spglobal.com