S&P Global Platts North American crude benchmark WTI’s consistent discount against its Asian counterpart Platts Dubai may continue to encourage South Korean refiners to test a wide variety of US export grades, with SK Innovation receiving a cargo of White Cliffs crude oil for the very first time in the third quarter.
US-Asia crude flows have flourished ever since the North American producer had lifted a 40-year ban on crude exports in early 2016, but vast majority of the oil meeting Asian demand remains limited to export grades produced from the Permian Basin and offshore US Gulf Coast with easy access to loading terminals.
Several traders at South Korean refining companies said many of the landlocked US and Canadian crudes including Bakken, Cold Lake Blend and White Cliffs could comfortably feed into Northeast Asian distillation units, but arbitrage economics for Asian buyers had often been difficult due largely to hefty transportation and logistics costs.
However, Platts WTI crude has extended its decline against other global benchmarks Dubai and Brent in H2, further opening up the arbitrage window and making a case for South Korean refiners to at least test out some of the landlocked North American crude grades in their refinery systems.
South Korea’s biggest refiner SK Innovation for one acquired 493,000 barrels of White Cliffs crude from the US in August, the company’s first ever purchase of the crude produced from the Denver-Julesburg Basin, a company official told Platts Tuesday.
“DJ Common Grade Crude Petroleum shall mean Crude Petroleum with a gravity of no less than 35 degrees API and no greater than 57 degrees API,” White Cliffs Pipeline stated in its rules and regulations guideline on interstate crude petroleum transportation by pipeline.
The guideline also stated that it will reject transportation tenders from the DJ Basin producers if the sulfur content of the crude exceeds 0.40%.
The White Cliffs Pipeline system consists of two 527-mile, 12-inch diameter common carrier, pipelines that move crude out of the DJ Basin to the Cushing, Oklahoma market, the pipeline operator SemGroup Corporation said on its official website. SemGroup owns 51% of White Cliffs Pipeline.
The August White Cliffs crude purchase comes on the heels of South Korea’s first imports of Canadian Cold Lake Blend crude in more than two decades.
In February, GS Caltex had received 274,000 barrels of Alberta’s landlocked oil, a company source previously told Platts, while about 317,000 barrels reached a South Korean port in Q2, according to Korea Customs Service.
PLATTS WTI/DUBAI DISCOUNT WIDENS
The North America-Asia arbitrage window has threatened to close in recent weeks amid a sharp spike in VLCC freight rates from the USGC to Northeast Asia, pushing up offers for WTI Midland crude delivered into the region.
Most recent trades reported for November-loading WTI Midland crude cargoes were at premiums in the low $2s/b to Platts Dated Brent on a delivered basis into Northeast Asia, Asian trade sources said.
Earlier trades for WTI Midland crude in the prior three months had been reported at premiums of $1-$1.50/b to Platts Dated Brent, Platts previously reported.
However, Asian end-users will likely continue to favor light sweet US crudes as these remain competitively priced against many North Sea, Mediterranean, West African and Middle Eastern crude grades of similar quality.
The spread between Platts front-line WTI crude swap and the same month Dubai swap tumbled to a discount of $7.83/b Tuesday, the lowest since June 8 when the discount was $8.04/b, Platts data showed.
The spread has averaged minus $5.27/b so far in H2, down sharply from minus $2.55/b in H1 and 2017’s full-year average of minus $1.89/b, according to Platts data. A weaker Platts WTI versus Dubai spread typically makes North American crude grades priced against NYMEX futures calendar month average and Platts WTI more competitive than Persian Gulf and Far East Russian oil.
In addition, the front-month NYMEX/ICE Brent futures spread averaged minus $7.51/b so far in H2, compared to minus $5.71/b in H1, Platts data showed.
“Dubai and Brent have [been] much more sensitive to growing concerns about the Iranian supply cutoff after November, widening [NYMEX and Platts WTI’s] relative discount,” Jiwoo Shon, commodities and energy market research analyst at SK Securities, said.
Reflecting South Korean refiners’ ongoing efforts to find alternative crude feedstocks to make up for the likely cutback in Iranian supply, SK Innovation has received 967,000 barrels of US Eagle Ford crude in August, the company official said.
The refiner also sharply increased crude imports from Saudi Arabia to 5.4 million barrels in August from 1.3 million barrels in July.
SK Innovation did not import any Iranian crude in August.
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