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Far East Russian grades outperform Asian crude on wide EFS, triggers rise in premiums

Far East Russian crude oil grades have emerged as one of the bright spots in the Asian sweet crude complex in December, as the wide Brent/Dubai spread made these Dubai-linked grades more attractive to North Asian refiners, trade sources said.

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This boosted demand for the Far East Russian grades, leading to a rise in premiums.

Russian mainstay grades Sokol, Sakhalin Blend and ESPO Blend have seen their premiums to Platts Dubai assessments soar by 50 cents-$1/b for February loading cargoes compared to the previous month, with Sakhalin Blend's premium currently seen at a 21-month high.

"It's mainly the EFS and the expensive condensates. Naphtha cracks [are] still OK and Aframax freight rates for Russia to North Asia are low. So all in all, [it] makes sense [for these grades to trade higher]," a source at a regional trading house said.

The front-month Brent/Dubai Exchange of Futures for Swaps -- a key indicator of ICE Brent's premium to benchmark cash Dubai -- averaged at $3.20/b this month until December 26, the highest since June 2016 when it averaged at $3.57/b, S&P Global Platts data showed. The November average was $2.70/b.

The wide EFS has made Far East Russian grades, which trade as a differential to Platts Dubai assessments, much more preferable compared to most Asian crude grades, which typically trade as a differential to Platts Dated Brent assessments.


Four cargoes of Sakhalin Blend for March delivery were most recently sold by Sakhalin Energy to a mix of Japanese and South Korean end-users at a premium of around $4.25/b to Dubai on a CFR basis, traders said.

This represented a jump of close to $1/b compared to the previous month, when February-delivery Sakhalin Blend cargoes changed hands at premiums of around $3.35/b to Dubai.

"We did anticipate that premiums will be higher this month, but this jump was unexpected," a Singapore-based condensate trader said.

Meanwhile, Indian producer ONGC Videsh sold via tender a Sokol cargo loading over February 9-15 to a trading house at a premium of around $4.90/b to Dubai, traders said. But this could not be confirmed with the company.

This was a 50 cents/b jump from ONGC's last Sokol tender, when a cargo for loading over January 28-February 3 was reported sold to a South Korean refiner at a premium of around $4.40/b to Platts Dubai.

Subsequent Sokol cargoes, one of which was marketed by ExxonMobil, were reported to have changed hands at premiums of around $4.70/b to Platts Dubai.

Medium sweet ESPO has also fared well this month. Differentials for the crude rose to $4.15/b against Dubai crude assessments for prompt-loading cargoes as of December 22, according to Platts data.

Prompt-loading ESPO differentials were last higher on March 1, 2016, at $4.30/b against Platts Dubai, the data also showed.

"ESPO would be more attractive [to Chinese buyers compared to other Brent-linked grades] based on such a wide EFS," a third crude trader said.


In addition to the wide EFS, sources also pointed to the lower volumes of condensate cargoes on offer this month as supportive for Russian grades, as some producers have chosen to take in their barrels for domestic consumption instead of releasing it for export.

Exports of Iranian South Pars condensate, of which many North Asian refiners are term lifters, were reported to have fallen in recent months after the country decided to take in more of its volumes for domestic consumption following a field maintenance that ended in mid-November, sources with knowledge of production said.

Indonesia's Senipah condensate was also reported to have been absent from the spot market during the January and February trading cycle.

The last Senipah condensate cargo seen was in early November, when Italy's ENI sold a 300,000-barrel cargo for loading over December 17-31 to an unknown buyer at a premium of $3.75/b to the Senipah ICP.

Exports of Senipah condensate are expected to mostly dry up next year, as the Indonesian government has appointed Pertamina to take over 100% of the stake in the Mahakam production field, where Senipah condensate is produced, once the current contract by France's Total and Japan's Inpex expire in December 2017.

Pertamina has said that it intends to reserve almost all of its output for its refinery systems in an effort to reduce its dependence on imported crudes. Sakhalin Blend, in particular, has benefited most from these developments.

The light sweet crude has a gravity of 45.5 API and yields 40.8% of naphtha, making it a viable alternative feedstock to condensate grades.

"The widening EFS is adding support, and also these are for relatively prompt cargoes for which the market is tight for the lighter grades," the condensate trader said.

--Andrew Toh,
--Avantika Ramesh,
--Eesha Muneeb,
--Edited by Geetha Narayanasamy,