Asia seeks answers in Russian crudes amid LNG surge, China demand

The anticipated availability of new crude import quotas in China and the search for alternatives to high-priced LNG in Japan have opened a window for Asian buyers to ship in more Russian crudes and push up their premiums, a trend that could continue in the near future.

As traders rest their hopes on the twin pockets of demand, cash premiums for Russian crude grades — ESPO Blend and Sokol — have risen sharply for November-loading barrels. Analysts said Russian crude will stand to gain amid expectations of an overall recovery in regional crude demand through the remainder of the year.

“Asian Q4 runs will rise by about 3% from Q3 levels on lesser maintenance and strengthening demand. That will contribute to recovering Asian buying appetite in the crude market,” Zhuwei Wang, manager for Asian oil analytics at S&P Global Platts Analytics, said.

It is widely expected that China will release the last batch of crude quotas at the end of September, or early October, which could support the buying appetite for Q4 cargo arrivals to some extent.

Trade sources said at least 19.8 million mt of quotas would likely be allocated in the last round, with at least 18 independent refineries expected to receive about 13.3 million mt.

On top of this, Zhejiang Petroleum & Chemical’s Phase 2 project and the 16 million mt/year Shenghong Petrochemical will likely receive 4.5 million mt and 2 million mt quotas, respectively.

Amid increasing signs of emerging north Asian demand for November-loading ESPO Blend crude, Russia’s Surgutneftegaz, was heard to have sold to a trading house and Chinese buyers via tenders at premiums of around $4-$4.50/b over Platts front month Dubai crude assessments.

Compared with August, when cargoes were heard sold at premiums of around $1.70-$2/b to Platts Dubai, the jump in cash premiums have left several market participants baffled.

“That’s like a leap, too high. That could be due to efforts to secure the barrels earlier in the cycle,” a crude oil trader in Singapore said.

Pockets of demand

As import quotas for Chinese independent refineries are expected to be issued in the weeks ahead, buyers may want to lock in November-loading barrels early, traders said.

“I think mainly Chinese demand is driving up ESPO Blend premiums. The independent refineries expect last batch of quotas should come out very soon,” another trader in Singapore said.

Meanwhile, rising LNG prices could push Japanese buyers to seek more oil supplies for the upcoming winter season, some traders said. The S&P Global Platts JKM for November was assessed 86.7 cents/MMBtu lower at $25.083/MMBtu on Sept. 17.

Japan may restart some oil-fired power generation units this winter, amid soaring LNG and coal prices, the Petroleum Association of Japan President Tsutomu Sugimori said Sept. 15, as refiners carry out contingency planning in response to the tightened power supply and demand balance over the past season.

“Some Japanese and South Koreans might be forced to take oil instead of LNG if there’s no easing on the gas supply situation,” a trader with a North Asian refinery said.

An ESPO Blend cargo loading in November was heard to have been sold by Gazprom Neft to a Japanese buyer at a premium of around $3.60/b-$3.90/b over Platts front month Dubai crude assessments.

Sharp cuts in October official selling prices by Middle East producers along with full term allocations by Saudi Aramco have made the region’s grades cheaper for buyers in Asia.

But traders said that Russian crude premiums are rising amid hopes that north Asian buyers could first turn to Russian crudes, despite plentiful cheaper crude options available to Asian refiners, because of easier access and competitive prices.

Sokol premiums remain buoyant

Meanwhile, based on November-loading tender results, traders saw that cash premiums for Far East Russia’s Sokol crude were resilient.

India’s ONGC Videsh Ltd., or OVL, was heard to have sold via tender 700,000 barrels of Nov. 21-27 loading Sokol crude to an end-user at a premium of $3.50-$3.60/b to Platts front month Dubai assessments, CFR Yeosu, traders said.

Earlier this month, ONGC sold a similar-sized cargo loading over Nov. 5-11 to Mitsui at a premium of $3.80/b to Platts front month Dubai assessments for November, CFR Yeosu.

Although cash premiums dipped for the second November loading cargo, traded levels were still a notch higher on the month, while October-loading barrels of the crude traded at Dubai plus $2.80-$2.90/b, CFR Ulsan, traders said.

“There are limited availability of other crude options. South Korean and Japanese buyers are not so keen, but Chinese demand is better than previous months,” a crude oil trader said.

In addition, the Brent Dubai Exchange of Futures for Swaps remain stable to wider on the month, with the EFS at an average of $3.41/b to-date in September, up from $3.32/b over August, according Platts data.
Source: Platts