US light sweet WTI crude has emerged as a potential replacement for Abu Dhabi's light sour Murban for Asia-Pacific refiners, as values for the latter surged owing to uncertainty about deliveries from the Middle East.
A Japanese refiner bought 2mn bl of WTI crude for June arrival on a fob basis at around a 10¢/bl discount to May Dubai assessments, market sources said, adding that the deal was concluded after the US-Iran conflict broke out.
The delivered value of the WTI cargo was equivalent to around a $10/bl premium to Dubai, based on the Argus-assessed freight rate for a 270,000t tanker from the US Gulf Coast to South Korea/Japan of $9.97/bl on 2 March.
Japanese refiners are not regular buyers of US crude, only considering the trade when they are priced more than $1/bl below Murban, traders said. The recent WTI cargo appeared to be around 45pc cheaper compared to Murban crude on a delivered basis. May-loading Murban, which would arrive in Japan in June, was assessed at a $6.70/bl premium to May Dubai on 2 March. The delivered value of Murban would be above an $18/bl premium to Dubai, based on the Argus-assessed freight rate for a 270,000t tanker from the Mideast Gulf to Asia-Pacific of $11.43/bl on 2 March.
Murban values soared after shipping insurers cancelled war risk coverage for vessels transiting through the strait of Hormuz. Exports of Murban load from the UAE's eastern port of Fujairah, outside the strait, so in theory there should be less disruption.
But refiners in Asia-Pacific may still shun Murban cargoes because some insurers refuse to provide coverage for a larger region, to include the Gulf of Oman. The Fujairah terminal and Oman's Duqm port were struck separately on 3 March, which may further deter buyers from making purchase of Mideast Gulf cargoes like Murban.
The allure of US crude may be capped by rising freight rates, market sources said. Rates for US-loading very large crude carriers (VLCC) are on track to hit six-year highs.
Some refiners may even consider run cuts or tapping strategic reserves to cover any interruptions to crude supply if the US-Iran conflict persists, expecting arbitrage prices for WTI to continue to rise if demand for the grade strengthens as a replacement for Mideast Gulf grades.
A swift end to the conflict between US-Israel and Iran could reduce the risk of procuring Middle East crude and in turn boost demand for Murban, traders said.
