Refiners in Asia are paying huge premiums for crude that could replace some of the supply stuck in the Middle East, with the most suitable grades from Norway and the U.S. being bid at record-high double-digit premiums over Dated Brent.
Many refineries in Asia, which is the most dependent region on Middle East supply, are designed to optimally run on the sour and heavier grades that the Gulf producers export. Now that most Gulf supply is either curtailed at the upstream level or stuck on tankers unable to pass the Strait of Hormuz, refiners pay upwards of $10 per barrel premium for many crudes that could be alternative to the Middle Eastern oil.
The huge premiums – some of them at record highs – will not dent refiners’ profits as fuel premiums over crude prices, the so-called cracks, are astronomically high, allowing the refiners to churn in handsome profits despite paying up huge premiums for the crude supply.
The Johan Sverdrup crude from the giant Norwegian field of the same name, for example, was last heard of being bid at $11.30 per barrel premium over Dated Brent, trade sources tell Bloomberg.
Another viable alternative to Middle Eastern supply, the U.S. Mars crude, has flipped from a slight discount to Dated Brent in February to a record-high premium of $11 per barrel in early March, before easing to a premium of about $6 a barrel in recent deals, according to the traders.
Little-known crudes from producers in Southeast Asia, such as Labuan crude from Malaysia, Minas from Indonesia, and Bach Ho from Vietnam, are now seeing premiums of over $10 per barrel above Dated Brent, compared to up to $2 a barrel historical premiums, the traders told Bloomberg.
“Despite high freight rates, longer voyage times and a steeply backwardated Brent structure, refiners have stepped up procurement of Atlantic Basin and American barrels since last week,” Kpler’s Senior Crude Oil Analyst, Muyu Xu, said this week.
Japanese refiners are likely buying at least 13 million barrels of U.S. WTI and Mars for April-loading, potentially the highest monthly level on record, according to Xu.
Thailand’s PTT is said to have bought March-loading North Sea Forties and Angolan crude, while South Korea’s GS Caltex purchased two April-loading cargoes of Kazakh-origin CPC Blend, according to Argus Media.
Chinese refiners, meanwhile, have placed orders for at least 9 million barrels of April-loading West African crude on top of the term volumes and continue to buy up March- and April-loading Brazilian crude, Kpler’s Xu notes.
By Charles Kennedy for Oilprice.com
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