Petrotahlil:Platts Market on Close assessment process witnessed Asian traders showing interest in unwinding some of their long positions in the Middle Eastern sour crude market with the wide backwardation in the Dubai market prompting refiners and trading firms to put brakes on their growing storage positions.
The spread between the first and third-line Dubai crude swaps was assessed at $2.06/b on May 17 in Singapore, Platts data showed, the strongest backwardation since $2.13/b seen on October 31, 2013.
The Dubai swaps spread averaged $1.49/b to date in the second quarter, the highest quarterly average spread since $1.50/b seen in the third quarter of 2013.
The physical Dubai crude market structure also strengthened to a multi-year high recently, with the spread between front-month Platts cash Dubai and same-month Dubai swap averaging $2.37/b in May, the highest monthly spread since November 2013, when it averaged $2.43/b.
The MOC process has seen 14 sour crude cargoes for loading in August change hands to date in June, with roughly 40% of these bought as full cargoes offered by various sellers, including oil majors Total and BP, China's Unipec and Chinaoil, South Korea's GS Caltex and Japan's Petrodiamond.
A total of five cargoes of light sour Abu Dhabi Murban crude, and one of Das Blend crude were sold by the companies during the MOC to date this month, on top of eight cargoes of Upper Zakum being declared via convergences of Dubai partials in the MOC.
A backwardation in the crude market structure represents lower prices for forward month contracts than the current spot price. In essence, backwardation occurs when market participants are expecting future prices to be weaker than prompt prices, hence increasing a sense of urgency for trading firms and refiners to cut back on oil stockpiles going forward.
South Korea's crude stockpiles jumped 22% on year to 54.927 million barrels in April, while stockpiles of oil products rose 11.6% on year to 67.572 million barrels, latest data from state-run Korea National Oil Corp. showed.
China's implied crude oil stocks as of end-April rose 53.8 million barrels from end-March, Platts calculations based on latest official data showed.
Satellite data from Ursa showed that China's crude stocks were at 664.51 million barrels at the end of May, up 4.76 million barrels from end-April.
H2 TERM SOUR CRUDE PROCUREMENT
In addition, Asian refiners continued to express concerns over the safe passage of their term Middle Eastern crude cargoes. The attack on Saudi oil tankers in May and the latest tanker fire incident in the Gulf of Oman may prompt buyers to seriously reconsider their H2 term allocation volumes, market sources said.
According to a survey of major refiners in Asia conducted by Platts earlier this month, at least five refiners in South Korea, China, Japan and Thailand said they may consider cutting back on Middle Eastern term supply in the event of additional hostilities on oil tankers in the region.
Two oil tankers were damaged in the Gulf of Oman early Thursday morning, with one vessel catching fire, amid concerns over a possible attack, just weeks after an alleged ship sabotage in the region, multiple shipping sources in Singapore and Shanghai said.
"Logistics risk would definitely be considered when bringing in Middle East sour crude ... with a few secondary units to undergo some maintenance before IMO 2020 anyway, term [Middle Eastern sour crude] intake would need to be cut back," said a feedstock procurement manager at a South Korean refiner.
A source at a Southeast Asian refiner said the state-run company was considering switching a portion of their Persian Gulf sour crude procurement to Asia-Oceania sweet crudes after the recent incidents in the Middle East.
Meanwhile, a company source at China's state-run trading firm Unipec said the fire incident has no impact on the company's immediate Middle East crude purchasing plan, but the logistics and maritime safety concerns could hamper the procurement trend.
China secured about 44% of its imported crude oil supplies from the Middle East this year. In January-April, it took 4.44 million b/d of crude from the region, up 12.6% year on year, data from the General Administration of Customs showed.
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