Analysis: First US crude offer in Asia MOC creates stir amid shut arbitrage

Singapore — The Asian Platts Market on Close assessment process registered its first ever offer for US crude oil Monday -- despite a 16-month low spread between WTI and Dubai making its purchase currently unattractive to Asian buyers.

The emergence of the offer has created a stir in the Asia-Pacific crude oil market, with many participants saying Tuesday they expected the closure of the US-Asia arbitrage to be short-lived and for such activity to increase going forward as US crude oil increasingly becomes a staple for many Asian refineries.

Oil major Shell in Monday's MOC process offered 1 million barrels of WTI Midland crude on the Mt Phoenix Jamnagar for October 15-25 delivery at Singapore/Linggi/Nipah on a DES basis. It is the first time ever that a US crude cargo has been offered during the Asian MOC process.

The offer remained standing at a premium of $4.55/b to first-line October Dubai at the end of the MOC process, with no buying interest seen.

It comes at a time when the arbitrage economics for moving US crude oil into Asia have suddenly become unattractive, traders said.

"WTI/Dubai spread [has] narrowed a lot [since] last week," a North Asian crude oil trader said.

The spread between second-month WTI crude futures has narrowed from the minus $5s/b range at the end of July to the minus $1s/b range in recent trading sessions, S&P Global Platts data showed.

Second-month WTI crude futures were assessed at $55.39/b at 4:30 pm Singapore time (0800 GMT) Monday, equivalent to a $1.11/b discount to same-month Dubai crude futures, which were assessed at $56.50/b the same day, the data showed. The spread is at its narrowest since April 19, 2018 when it was 78 cents/b.

OCTOBER BUYING LARGELY COMPLETED

In addition to the closed arbitrage, most Asian refiners had completed procurement for October delivery cargoes earlier in the trading window, traders noted.

"I don't see any trades lately for US arbitrage [barrels as it is] generally very expensive [now], and most US crude buyers were well covered earlier this month or late last month," one crude trader said.

A WTI Midland crude cargo for October delivery into South Korea was last heard traded in early August at a premium in the range of $3.80-$4/b to Dubai on a CFR basis, traders said.

Prior to that, CPC Taiwan was heard to have purchased 2 million barrels of the crude for October delivery into Taiwan at Dated Brent plus around $1.50/b on a DES basis.

"Now, I think WTI Midland [prices are getting] a bit too expensive," a Singapore-based crude trader said.

ACTIVITY SEEN SET TO INCREASE

Despite current economics, traders expect to see more activity for US crude in the Asian MOC process going forward.

"The arbitrage [to Asia is] still not yet open for US barrels, but definitely [there] will [be] more offered to Asia," the North Asian crude trader said.

The Asia Pacific has become a key destination for US crude exports in recent years, with almost half its total crude exports over January-May destined for the region, according to US Energy Information Administration data.

An increase in Asian MOC activity for US crude could potentially compete with demand for lighter crude oil grades from the Middle East, traders said.

"[It will be] very challenging for light sour grades like Murban, Qatar Land and Das Blend in the future," a crude oil trader said.

--Ada Taib, ada.taib@spglobal.com

--Edited by Wendy Wells, wendy.wells@spglobal.com