Sour crude complex firms despite dip in product margins

Singapore — The Middle East sour crude complex, led by benchmark Dubai crude futures, continued its trek upwards as buyers shrugged aside the downward slide in product margins, while demand for October-loading sour crude barrels remained firm.

At 11 am in Singapore (0300 GMT) on Thursday, the October Brent/Dubai Exchange of Futures for Swaps spread narrowed to $2.19/b from $2.33/b assessed at the close of trading in Asia on Wednesday evening.

The EFS, often used as a gauge for premiums commanded by Brent-linked light sweet crude over Dubai-linked medium sour crude grades, has narrowed from the start of the week on August 19 when it was assessed at $2.71/b, Platts data showed.

Demand for sour crude barrels loading in October from Asian refiners has remained firm, crude traders told Platts throughout this month. This is despite the rally in product margins losing steam, and with the floor falling out from under high sulfur fuel oil cracks.

The Month 2 Singapore 180 CST FO swap versus Dubai averaged minus $1.92/b over July, but fell to minus $7.75/b to-date in August, according to Platts data.

The dive in fuel oil margins may be due to the onset of lower sulfur marine fuel requirements set to take effect from January 2020.

Meanwhile, intermonth spreads for Dubai futures also remained firm, reflecting strength in the medium sour crude complex in Asia. The September/October futures spread stood at $1.04/b at 11 am in Singapore on Thursday, compared with $1.01/b for Wednesday's assessment.

Similarly, the October/November spread widened to 90 cents/b Thursday morning, from 88 cents/b Wednesday evening.

Meanwhile, a cargo of Abu Dhabi's medium sour Upper Zakum crude was declared in the Platts Market on Close assessment process for Middle East sour crude in Asia Wednesday, making it the fifth such declaration this month.

The cargo was declared off a convergence of Dubai partials, when Shell purchased its 20th partial of 25,000 barrels from Reliance during Wednesday's MOC process at an outright price of $60.05/b.

This is the fifth October convergence declared this month off Dubai partials, as well as the fifth Upper Zakum cargo declared via these convergences.

At 4:30 pm (0830 GMT) in Singapore on Wednesday, the October Dubai cash/futures spread rose to $1.96/b, compared with $1.82/b Tuesday.

The same spread was pegged at $1.99/b Thursday morning.

--Eesha Muneeb, eesha.muneeb@spglobal.com

--Edited by Norazlina Juma'at, norazlina.jumaat@spglobal.com