Lower Qatari crude volumes may add to upward price momentum

A shorter-than-usual Qatari loading program for Al-Shaheen crude may contribute to the uptick in sour crude price differentials for physical cargoes trading this month, crude traders in Asia told S&P Global Platts this week.

Al-Shaheen production is currently approximated to be around 310,000 b/d, out of which typically 250,000 b/d is available for export outside of domestic Qatari usage. This is equivalent to between 15 and 16 cargoes, sized 500,000 barrels each, in a typical month.
However, Asian refiners will only be able to avail between 12 and 13 cargoes for the medium-heavy sour grade’s September loading schedule, owing to field maintenance, traders told Platts.

Production and field operation of the offshore Al-Shaheen field is in the hands of the North Oil Co., a joint venture between the state-owned Qatar Petroleum (70%) and the French oil major Total (30%).

The grade, with an API of 28 and sulfur content of around 2.37%, is a staple for refineries in Asia due to its high residual fuel and distillates.

Al-Shaheen also is often a harbinger for the monthly Middle East sour crude market sentiment, as it is one of the first grades to be offered in the spot market via a monthly tender by Qatar Petroleum. The tender results are watched keenly by market participants in Asia as a guide to price direction for the remainder of the month.

In a reflection of the shorter program, Qatar Petroleum recently issued a tender offering two cargoes of the crude loading over September, down from four cargoes offered in the previous month.

The tender closes Tuesday, and results are expected in the latter half of this week.

HIGHER THAN PREVIOUSLY ANTICIPATED

Crude oil spreads for Middle East sour grades recently rebounded from a softer outlook for the month, on the back of reemerging demand from North Asian refiners.

The upward momentum could lead to higher bids for Al-Shaheen crude than previously anticipated by the market, crude traders said.

September cash Dubai’s premium to futures rose to a month-to-date high at $1.47/b Friday, as several million barrels of light and medium sour crude were sold into China for October arrival.

The spread — a proxy for spot market demand — rose to an average of $1.27/b in the second week of July, versus 98 cents/b in the first week.

Crude traders believe the rally is not out of steam just yet, and that it may stay firm around mid-$1s/b levels.

“I don’t think it [Dubai premium] will go to $2.50/b levels seen previously, but it will definitely go up,” a Singapore-based trader said as prices rose last week.

Last month, the Al-Shaheen tender comprising four cargoes was priced around 10-15 cents/b above Dubai premiums on the day of closing.

A continuation of last month’s Al-Shaheen/Dubai spread could further entrench the upward rally in crude price differentials for September loading cargoes.

Still, some refiners in Asia said they were waiting for the price jump to ease before coming out on the market to secure cargoes.

“We are confident that prices will come off later in the month — we are in no hurry,” a source with a North Asian refiner told Platts earlier this month.

Platts assessed September Al-Shaheen crude at $66.19/b, and at a premium of $1.80/b to Dubai Friday.
Source: Platts