S&P Global Platts has launched daily assessments of Brazilian Lula crude oil delivered ex-ship (DES) in North Asia, basis the eastern Chinese port of Qingdao from October 1, 2019.
Platts assesses cargoes for delivery three months from the date of publication. For example, in October Platts will assess outright prices and premiums for Lula cargoes for delivery in January.
Platts first announced plans to launch the assessment in a subscriber note published September 9, 2019: https://www.spglobal.com/platts/en/our-methodology/subscriber-notes/090919-pl atts-to-launch-spot-assessments-of-brazilian-lula-crude-des-north-asia
The launch follows substantial growth in Brazilian crude exports to Asia, especially China where independent refineries -- which are mostly in eastern China's Shandong province -- have emerged as major buyers of the medium, sweet Lula with typical API gravity of 30.5 and 0.35% sulfur.
Of Brazil's total crude exports of 1.15 million b/d in 2018, around 62% flowed to Asia. Of the total volume, 57% or 653,000 b/d were placed into China, data from Brazil's National Petroleum Agency showed. Over January-July 2019, exports to China jumped 26% year on year to 726,000 b/d, accounting for 63% of Brazil's total exports of 1.15 million b/d, which rose 6% year on year.
Discovered in 2006 at the Tupi field, the offshore pre-salt stream Lula field in the Santos Basin is Brazil's biggest oil and gas producing acreage, with production of around 1 million b/d accounting for 30% of the country's output. Production began in December 2010, and there are now seven producing floating production, storage and offloading vessels in the Lula field. Lula is located in concession BM-S-11, where operator Petrobras holds a 65% stake. Shell has 25% interest and Galp, through its subsidiary Petrogal Brasil, has a 10% share in the concession.
Platts Lula assessment reflects cargoes for DES delivery basis Qingdao. Platts assessment reflects buyer's option to nominate discharge ports within Japan, Korea, Taiwan and China (JKTC) as per standard charterparty options, or alternatively to take delivery by ship-to-ship transfer.
The DES basis Qingdao assessment for Lula reflects cargoes for delivery over the full calendar month three months ahead of publication.
Buyers and sellers must provide a 10-day wide delivery window at the time of submitting their bids and offers to Platts for publication. Participants may submit bids or offers for delivery windows wider than 10 days, up to 15 days, with seller's option to narrow to a 10-day delivery window latest by 60 calendar days prior to the first day of the traded laycan. Sellers should narrow down to a 5-day delivery window 15 days prior to the first day of the 10-day laycan. Wider laycans may be normalized to the standard for assessment purposes.
Platts DES basis Qingdao Lula assessment reflects deliveries of 1 million barrels partially discharged from a VLCC, with +/-10% operational tolerance at seller's option.
Bids, offers and trades for volumes up to 2 million barrels will be published during the Platts Market on Close assessment process and may be normalized to the standard.
Buyers and sellers must name the basis port at the time of submitting their bids and offers to Platts for publication during the MOC process. Buyers may nominate delivery at any safe and sound alternative discharge ports within JKTC at a reasonable time prior to delivery, subject to payment of additional costs as per the charterparty contract for the vessel. Platts understands VLCC charterparty agreement for crude shipments from the Americas to North Asia typically include options for delivery at other regional ports priced as a lump sum freight differential to the basis port. Participants may submit bids or offers with non-standard charterparty options for publication, which may be normalized to the standard for assessment purposes.
Seller must name the delivery vessel either at the time of submitting their offer, or following a trade, nominate a vessel latest by 60 days prior to the first day of the 10-day delivery window. In offers with named vessels, the deal will be subject to buyer's acceptance of the nominated vessel. For offers with unnamed ship, the seller has the responsibility to meet the reasonable vetting requirements of a typical market participant in the discharge port nominated by the buyer at the time of trade. Seller may substitute the vessel with another meeting or exceeding the same approvals at any reasonable time before delivery of the cargo by providing a written notice to the buyer. In addition, the vessel must also meet physical limitations of the nominated discharge port including draft or beam restrictions, as well as conditions set by the country of destination.
Any substitution in vessel or discharge port should not financially harm the counterparty.
Platts publishes assessments on an outright basis as well as differentials to the whole month average of Platts Dated Brent and Platts Dubai assessments during the month of delivery.
Starting October 1, Platts is also publishing an Asia Dated Brent (ADB) Strip M3 assessment, reflecting the forward value of Dated Brent three months ahead of the date of publication at the 4:30 pm Singapore close (0830 GMT).
Platts will consider for publication bids, offers and trades on other pricing basis and may normalize them to the reference assessment basis.
Counterparties in a trade reported during the MOC process must perform basis their typical bilateral trading and credit terms that have been applied and accepted by both counterparties in the open market.
The new assessments appear in the Platts Crude Oil Marketwire, Platts Oilgram Price Report and on Platts Global Alert on page 2238 under the following price symbol codes:
Lula DES Qingdao LUQDA00 Lula DES Qingdao vs Dated Brent LUQDB00 Lula DES Qingdao vs Dubai LUQDD00 ADB Strip M3 ADBS003
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