Demand for medium sour grades rises as light sour crude turns expensive

Demand for Middle East medium sour crudes, such as Oman, Upper Zakum and Al-Shaheen, continued to grow as prices for light sour grades from the region, such as Murban, turn increasingly expensive for Asian refiners, sources told S&P Global Commodity Insights June 13.

While it is still early days in the August-loading cycle, buyers have kicked off their purchases as the appetite for oil and products across most Asian economies showed no signs of slowing down, sources said.

Five 500,000 barrel cargoes of Qatar's Al-Shaheen crude were heard sold to Japanese buyers including Cosmo Oil, Idemitsu and Eneos for loading in August. The cargoes were heard sold at a premium of around 15 cents/b to the grade's term price, also known as official selling price, but the information could not be verified.

"[It is] a fast market these days [and] medium [sour crudes] getting tighter," a trader with a North Asian refinery said.

Light sour crudes, such as Murban, have seen its prices elevated as the upcoming summer driving season continues to bolster buying interest for the crude, sources said.

"Think most feel Murban [is] getting a little expensive ... [Asian buyers] could be wanting to cool off on buying [this grade] to avoid spike in premiums," a trader in Singapore said.

The August IFAD Murban against August Dubai futures spread averaged $10.34/b in June so far compared with $7.43/b across the whole of May, data showed.

This widening spread between light sour grades and medium sour crudes is prompting buyers to switch to the more price competitive medium grades, the trader with the North Asian refinery said.

"I think a wide light/medium gap helps [the switch]," the same trader said.

In June so far, the cash spread between front-month Platts Murban and Platts Dubai averaged $3.13/b compared with $2.40/b for the whole of May, S&P Global data showed.

Lending support to buyers decision to lift more medium sour crude were the cracking margins that continue to hit record highs for products, such as gasoil, traders said.

Crack spreads for gasoil have soared to an average of $49.66/b in June till date compared to $36.52/b last month, S&P Global data showed.

Europe seeks more lights

The strengthening in Murban crude price could also be attributed to the upcoming summer driving season in parts of the West, which could push more light sour crudes to the region, sources said.

A supply crunch caused by the outbreak of the Russia-Ukraine war and ensuing sanctions on Russian energy is prompting refiners in Europe to turn to Middle East crudes instead, traders have said.

"Light crude might more [likely be] targeting West than before I suppose," the same trader with the North Asian refinery said.

This results in more competition for Middle East light sour crude with Asian refiners potentially having to pay higher prices when fulfilling their requirements for the lighter grades, traders said.

In a recent tender, Indian Oil Corp. was heard to have purchased Brent-linked West African crude oil grades, which typically have lower sulfur content and could compete with Murban, despite the wider Brent/Dubai Exchange of Futures for Swaps, or EFS.

Market participants expected the refiner to opt for more Middle East crude considering the wide Brent/Dubai EFS spread but given the demand for light sour crude in the West, IOC's purchases come as no surprise, traders said.

"[In the IOC tender] people thought [the refiner] will not buy WAF [West African crude] because of EFS [Exchange of Futures for Swaps spread]," the second trader said, referring to IOC's purchases of West African crude to India.

The Brent/Dubai EFS averaged $11.52/b in June to-date, compared with $9.48/b for the whole of May, S&P Global data showed.

The EFS is often tracked as an indicator of North Sea low sulfur crude value versus Middle East high sulfur crude, and a wider EFS makes crude priced against Dubai, such as Murban, more economically attractive compared to Brent-linked ones.

Earlier in June, IOC was heard to have bought, via tender, around four million barrels of various light crudes including one million barrels of Murban crude and three million barrels of various West African grades including Nemba, Zafiro and Akpo for delivery in September.