News
15/10/26
Mideast crude weakens as more sales ease Hormuz fears
Singapore, 15 October (Argus) — Spot prices for Mideast Gulf crude have come
under pressure this month despite escalating attacks around the strait of
Hormuz, as increased export flows and competitive sales by producers in the
region kept Asian refiners well supplied. Signs of a recovery in crude exports
through the strait of Hormuz to near pre-war levels appeared to have intensified
competition among Mideast Gulf producers. This may have prompted several
producers to slash the official selling prices of their November term exports to
multi-year lows, despite signs of a stronger market last month. Key producers
Saudi Aramco and Abu Dhabi's Adnoc also continued to market large volumes of
spot crude into Asia-Pacific. This provided ample supplies for buyers in China,
India, Japan and Korea, even as surging freight cost globally eroded economics
to pull arbitrage cargoes from the Atlantic basin into Asia-Pacific. Aramco sold
around 40mn bl of crude consisting of Arab Light, Arab Medium and Arab Heavy
loading mainly in November to buyers in Asia-Pacific on a spot basis, adding to
sales of around 100mn bl last month concluded in a series of deals from
mid-September. Meanwhile, Adnoc sold a further 18mn bl of December-loading crude
for either delivery or on a ship-to-ship (STS) transfer basis in the Gulf of
Oman in its eleventh sale tender. Adnoc's tender, which closed on 12 October,
sold December-loading medium sour Upper Zakum STS cargoes at discounts between
$4-5/bl to front-month Dubai assessments, while light sour Das cargoes were sold
at a discount of $3/bl up to parity against Dubai. The prices were weaker
compared to Adnoc's tenth tender, which closed on 28 September, when it sold
December-loading Upper Zakum STS cargoes at parity to Dubai and Das cargoes at
premiums between $5-6/bl to Dubai. The softer market was also reflected in
regional benchmarks. The Dubai backwardation, the spread of front-month to
third-month Dubai prices and a key gauge of Mideast crude demand, tumbled to a
premium of $7.15/bl on 15 October. This was the lowest since 11 August and a
sharp decline from the six-month high average of $19.33/bl in September , when
supply concerns had underpinned Dubai prices last month after attacks forced
Aramco's East-West pipeline off line. Spoiled for choice Besides Aramco and
Adnoc, other Mideast Gulf producers, including Kuwait, Qatar and Iraq, also
continued to sell crude exported from within the Mideast Gulf. Demand for STS
cargoes loading in the Gulf of Oman was healthy because sellers were shouldering
the bulk of the risk by bringing cargoes out of the strait of Hormuz, market
participants said. Aramco and Adnoc in particular are expected to continue
directly offering spot cargoes in the near term despite falling prices and
intensifying attacks in the strait because of the importance of crude sales to
their economies, the participants added. Meanwhile, both Iraq and Qatar appeared
to be mainly relying on trading companies to move their crude. The increased
availability and flexibility of these spot sales, with many recent deals
concluded on a delivered basis, have helped Asian refiners cope with surging
freight rates that have mostly closed off the eastward arbitrage for usual
supplies from the Atlantic basin, including US WTI crude that typically competes
with light sour Murban. Buying activity for January-arrival WTI by key northeast
Asian buyers had been subdued, with thin interest in particular for shipments
transported on very large crude carriers (VLCCs) after rates soared to historic
highs last week. Competitive prices of Mideast Gulf spot crude also enticed
strong buying interest from Chinese refiners , as they favoured such prompt
volumes over more expensive forward supplies from the Atlantic basin.
State-owned refiners snapped up large amounts of Saudi spot crude, which curbed
their interest in Russian ESPO Blend. Smaller independent refiners in Shandong
also benefited from availability of competitively-priced Basrah crude that
plugged a gap caused by tighter availability of their usual Iranian crude
feedstock. By YouLiang Chay and Fabian Ng Send comments and request more
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