Asian buyers are eyeing more purchases of sour crude from the United States as the price of a key export grade hit a two-week low, under pressure from sales of oil from U.S. emergency reserves, trade sources said on Tuesday.
A rise in U.S. sour crude exports to Asia will displace demand and depress prices for Middle East staples such as Oman, Upper Zakum from the United Arab Emirates and Iraq’s Basra crude.
U.S. Mars crude WTC-MRS ended trading last week at the widest discounts in more than two weeks on Friday as export interest waned.
Prices for sour crude grades in the U.S. Gulf Coast such as Mars and Southern Green Canyon are expected to face further downward pressure after the U.S. Department of Energy said on Monday it would sell up to 20 million barrels of crude from its Strategic Petroleum Reserve (SPR).
U.S. Mars crude for delivery into north Asia in November and December are currently at $1.30 a barrel above Dubai quotes, the trade sources said, down from premiums of more than $2 about two weeks ago.
The discount for benchmark U.S. crude futures to international benchmark Brent has also stretched to its widest in nearly three months, making U.S. crude-linked grades more attractive to foreign buyers. CL-LCO1=R
“The arbitrage is wide open,” a Singapore-based trader said, adding that the U.S. supplies are displacing Oman and Upper Zakum crude in Asia and this could weigh on values of the Middle East grades.
Earlier this month, South Korean and Chinese refiners already snapped up at least 5 million barrels of U.S. Mars crude loading in September.
Source: Reuters (Reporting by Florence Tan; Editing by Shounak Dasgupta)