23-01-2018

Fuel oil-rich Mideast crudes slip into discounts on slumping margins, ample supply

Some Middle East crude oil grades have fallen into discounts against their benchmarks for sales to Asia in March, a sign of a weakening market, as fuel oil margins have declined, curbing refiners’ appetites for the oil, multiple trade sources said on Monday.

March-loading Qatar Marine crude was valued at a discount of about 20 cents a barrel below its official selling price (OSP), the traders said. That is down from a premium of between 20 cents and 30 cents for February cargoes.

March-loading Banoco Arab Medium was valued at a discount of about 30 cents a barrel to its OSP, similar to the previous month, the traders said. January-loading cargoes traded at discounts of as low as 80 cents a barrel last month, they said.

Iraq’s Basra Light for February loading was valued at a discount to its OSP, the fifth month in a row it was at a discount, the traders said.

These grades, known as medium-sours, typically yield more than half of their oil product output after initial refining as residue fuel oil. The discount for fuel oil versus benchmark Dubai crude has widened by 50 percent since the start of the year.

Last week, a typical Singapore refinery lost $6 for every barrel of fuel oil they produced from Dubai crude. The wide losses for fuel oil has depressed the spot prices for these medium-sour grades, the sources said.

Other medium-sour crudes have seen their premiums to their OSPs narrow with March-loading Upper Zakum crude trading at its smallest premium in six months, the traders said.

Prices for medium-sour crudes were at premiums last year as the production cuts by the Organization of the Petroleum Exporting Countries had focused on tightening supplies of these grades in favour of higher-priced light crudes.

Light crudes, which tend to yield higher value oil products such as middle distillates, like diesel and jet fuel, and gasoline when refined, are seeing an uptick of interest from Asian refiners with spot premiums for Russian grades rising to their highest in more than a year. “Light grades are showing better economics because of the stronger middle distillates crack,” said a source with a North Asian refiner.

Supplies of medium-sour crude to Asia have also climbed at the start of 2018. Saudi Arabia resumed normal crude supplies to Asia from January after some cuts late in the second-half of 2017. Iraq also raised Basra crude to all-time highs in December. Similarly, Bahrain resumed offers of Banoco Arab Medium spot cargoes in January after a two month halt, while Qatar has also bumped up al-Shaheen crude exports, traders said.

Source: Reuters

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