Russia’s ESPO premiums likely to ease on narrow Brent/Dubai spread

Cash differentials for Russia’s ESPO Blend crude oil will likely ease for the remaining March loading cargoes as the narrowing spread between Brent and Dubai could result in competition for Dubai-linked crudes, market sources said.

Earlier this month, the medium sweet crude was heard to have traded at premiums of between $3/b and $3.50/b to Platts Dubai crude assessments, they indicated.

“Economics is not there for [ESPO] at these levels as it is Dubai-linked and the Brent/Dubai spread has come off,” a Singapore-based crude trader said.

The Brent/Dubai Exchange of Futures for Swaps, a key indicator of ICE Brent’s premium to benchmark cash Dubai, have fallen over the past week to an 18-month low of 74 cents/b on January 24, according to S&P Global Platts data. The spread was last narrower on July 11, 2017 when it was at 73 cents/b.

The Brent/Dubai EFS was last assessed at 78 cents/b on Monday.

Traders indicated that the narrow EFS has opened options for Asian end-users to seek alternative crudes.

“Brent/Dubai is narrow which means that [Brent-linked] West African and [other arbitrage barrels such as] US crude cargoes are more economical,” a North Asian crude trader said.

On a CFR North Asia basis, ESPO crude was assessed at $63.82/b on Monday, compared with $62.385/b for Dalia and $62.30/b for WTI MEH, Platts data showed.

Earlier in the trading cycle, Russia’s Surgutneftegaz was heard to have awarded its tender offering two 100,000-mt cargoes of ESPO Blend crude for loading over February 28-March 5 and March 4-9 from Kozmino at premiums of around $3.10/b-$3.20/b to Platts Dubai crude assessments.

Apart from Surgut, Gazpromneft and Swiss-based Tenergy were also heard to have sold a cargo each at premiums of between $3.10/b to $3.40/b to Platts Dubai crude assessments, trade sources said.

Some traders have attributed these strong premiums, which were similar to traded levels for February-loading cargoes last month, to prompt demand from baseload buyers in China.

“[There were] more demand [for ESPO cargoes loading] at the beginning [of March] as there were not much cargoes for February [loading] because [it was a] short month,” a second North Asian crude trader said.

Russia’s exports of ESPO crude oil in February were expected to total 2.4 million mt, down 10.45% from January, according to the monthly loading program.

In addition, the prompt demand could be attributed to Chinese independent refiners receiving the first tranche of their crude oil import quota.

“Once the [crude oil import] quota is out, people generally look at buying cargoes for more prompt [loading],” the Singapore-based crude trader said.

China has allocated a total of around 84.06 million mt of crude import quotas to 44 qualified refineries in its first tranche for 2019, mostly to the country’s independent refineries.

However, after these initial demand was met, coupled with the narrowing Brent/Dubai EFS, traders see very little support for the Russian grade.

“At current levels, [Chinese] teapots don’t show high interest [for the remaining March-loading cargoes],” the first North Asian crude trader said.

“The remaining cargoes will possibly [receive] lower [premiums],” the trader added.

Several cargoes for March loading should still be available, with Rosneft offering a cargo and Surgut set to offer their remaining cargoes for March loading, they added.

Rosneft has issued a tender offering a 100,000 mt cargo of ESPO crude for loading over March 11-16. The tender closed January 25 and is valid until January 31.
Source: Platts