Russian Urals attractive to Asia oil refiners

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Russian Urals attractive to Asia oil refiners

SINGAPORE - Asian refiners are expected to extend imports of Russian Urals crude despite its unusual rise to premiums to the European benchmark, due to limited supplies of costlier Middle East grades, industry sources said on Thursday.

By (Reuters)

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Published: Thu 16 Jul 2009, 4:28 PM

Last updated: Thu 2 Apr 2015, 7:36 AM

Flows of Urals to Asia are estimated to have risen to at least 5 million barrels a month since May, versus negligible volumes last year, as it becomes an increasingly attractive alternative to sour crudes from Gulf OPEC producers, traders said.

Prices of Urals rose to the highest premium against Dated Brent in at least 10 years last week, both for cargoes to be loaded from the Mediterranean and Northwest Europe.

The surge is due to the ongoing cuts in production by OPEC oil producers, which prompted the official selling prices (OSPs) of Middle East crude to rise, and strong demand from Asia.

But the higher prices of Russia’s main crude have not deterred major buyers China, Taiwan and recently India, because the spread between Brent crude and Dubai has turned negative, a rare occurrence since the European crude is a better grade.

“The EFS is negative so arbitrage barrels should be OK,” said a trader with a refiner.

The August EFS has remained in negative territory for most of the past 10 days.

And in a sign that the negative value could persist, the September EFS, which takes over as front-month on Friday after August Brent futures expire, is already at negative levels, assessed at a 15-20 cent discount on Thursday.

“It’s on the strength of sour barrels,” a Singapore-based trader said.

OPEC’s hefty supply curbs since late last year and especially since January, have mainly affected supplies of sour Middle Eastern crude.

“The East needs oil from somewhere. OPEC has cut quite a lot,” said a Singapore-based trader.

INTEREST FOR RUSSIAN CRUDE

The Russian grade, which is normally shipped in VLCCs, had been largely shunned in Asia last year when Middle Eastern suppliers were showering refiners with as much crude as needed amid record-high oil prices.

Most regional refiners such as Japan lack the capacity to take such large shipments of spot sour crude last year when they have easier access to 500,000-barrel lots of Oman crude and have enough term supplies amid falling domestic demand.

Other than China and Taiwan, demand has surfaced from India, where the largest private refiner, Reliance Industries, has ramped up imports with the start-up of the new 580,000 barrels per day (bpd) refinery.

The refiner, which will run a combined capacity of 1.24 million bpd when the second plant becomes fully operational in two months, has started to buy spot Urals crude from June loading onwards, traders said.

“Reliance could not fully secure term supplies. And they can run anything,” a trader with an Asian refiner said.

However some signs are emerging that could limit demand for Urals — the Middle East crude market has started weakening for September barrels, with some sellers saying that rival Oman crude is becoming more competitive.

“Probably the arbitrage is not open, given where Oman is now,” a seller said.

Urals and Middle East benchmark Oman are similar grades with an American Petroleum Institute (API) gravity of around 32 and a sulphur content of 1.10-1.20 percent, allowing refiners to substitute one for the other.

“There is still a possibility to buy Urals. But Middle East crudes are also softer compared to the previous month,” a trader with a North Asian refiner said.



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