Weak demand in Asia, which has seen May-loading cargoes still being on offer in second half of April when producers began selling June barrels via tenders, and a glut of alternative Middle East supplies weighed on premiums of Russia's ESPO crude, industry sources said Wednesday.
ESPO crude was assessed at a premium of $3.10/barrel to the front-month Dubai assessment Tuesday, down $1.15/b from the assessment on April 2 -- the first trading session for April, Platts data showed.
Trading was thin in the first half of April after several May ESPO crude cargoes were awarded via tenders in late March, including a cargo for loading over May 31-June 2 from Rosneft to Glencore at Dubai plus $4.80/b.
Market sentiment was weak for most of April as alternative Middle East crudes came under pressure, especially Oman, which saw premiums for June loading cargoes falling from plus $2.40/b on April 2, to parity to Dubai swaps on Tuesday.
"ESPO will be affected by [the weak] Middle East crude market since Oman is a substitute grade," a source said.
In mid-April, two May-loading cargoes, each 100,000 mt, of ESPO crude were being offered. Malaysia's Petronas was offering an early May loading cargo, while Japanese trading company Itochu offered a late May loading cargo.
Sources said the offers came after ExxonMobil had acquired an ESPO crude cargo for early May loading from Tenergy at Dubai plus $3.50/b -- about 50 cents/b below the cargo bought by Itochu from Surgut in a tender at Platts front-month Dubai crude plus around $4/b.
There was a slight recovery in ESPO premiums in the latest tenders for June supplies. Traders said TNK-BP sold a 100,000-mt cargo of ESPO crude for June 5-10 loading to Mitsubishi via tender at Dubai plus around $3.20/b, while Surgut was heard to have sold five cargoes for loading over June to buyers, including Vitol and BP, at Dubai plus mid- to high-$3s/b.
"I don't think there's a dramatic change on real demand [for ESPO crude] but maybe traders were determined in case [they could not secure the cargoes]," said a source, who added "that [the] ESPO [premium in the Surgut tender] maybe a bit overvalued [as Oman crude is weak]."
Indonesia's Petral has bought 100,000 mt of ESPO crude for July delivery from BP at $2/b above Dated Brent, which Platts data showed was at around Dubai plus $3.60/b FOB.
Industry sources were uncertain whether the slight recovery in ESPO crude premiums from April's low of around Dubai plus $3/b, would hold given the supply overhang and relatively weak demand for the crude in Asia. There are expectations that the later ESPO tenders may draw lower bids than the earlier ones.
The first ESPO crude tender from TNK-BP might fetch better premiums compared with later ones including that from Rosneft, said a market source.
Rosneft was expected to issue a tender offering June loading cargoes of ESPO crude later this week.
Source: Platts