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Sentiment mixed on price direction for light Middle East crude oil grades despite OSP cuts

Sentiment for April-loading light Middle East sour crude oil grades was mixed Friday with some anticipating the grades would continue to trade at discounts despite the cuts made to their latest official selling prices.

Supplies of light sour crudes are still ample while demand from North Asian refiners should ease because of refinery turnarounds, the traders said.

“Lighter grades are still oversupplied. Murban will not be trading in premiums… it will still be a discount market,” said a North Asian crude trader.

Earlier this week, Abu Dhabi National Oil Co set the January OSP of its Murban crude at $60.95/b, equivalent to a premium of $1.87/b to the average of first-line Dubai crude assessments published by S&P Global Platts in January, or down 31 cents down from a premium of $2.18/b in December.

Some traders, however, are bullish on the trading prospects for light sour crudes.

They expected these grades to trade at parity or small premiums to their respective OSPs, compared to the discounts of around 30-35 cents/b heard for March-loading cargoes last month.

A second North Asian crude trader said that the market for light crudes was still weak but that with the latest OSP cuts, Murban could trade at “flat to small premium.”

Another trader noted that light sour crudes could trade at premiums as “arbitrage barrels are starting to be expensive.”

Platts assessed UK North Sea Forties crude at $63.865/b on a CFR North Asia basis Friday, compared to $63.82/b for Murban on a CFR North Asia basis.

The price direction for the light crudes will be tested in the coming weeks after Asian refineries assess their linear programming models and make decisions on their purchases, traders said.

A Singapore-based crude oil trader doubted whether light crudes would trade at a premium but added that if the current strength in the medium sour crude market persists, it might help light Middle East grades.

Concerns over supply of medium heavy sour crudes as a result of OPEC production cuts and uncertainties over the implications of US sanctions on Venezuela have supported the values of these grades in the current trading cycle for April-loading cargoes which commenced on February 1.

Reflecting the strength in the medium heavy sour complex, the spread between front-month Platts cash Dubai and third-line Platts cash Dubai is averaging a premium of 67 cents/b for February to date, up from an average premium of 32 cents/b in January, Platts data showed.

The spread was assessed at a premium of 67 cents/b on Friday, slightly down from the more than three-month high of 73 cents/b on Thursday.

Supply concerns have also pushed Platts front-month cash Dubai assessments above ICE Brent values for the first time since August 2015.

The front-month cash Dubai was assessed above front-month ICE Brent crude at the 4:30 pm Singapore close for the fourth consecutive day on Friday.
Source: Platts

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