Spot premiums for Russian grades ESPO Blend, Sokol and Sakhalin surged in October on the back of strong Asian winter demand, as refiners shore up oil supplies for heating amid soaring LNG and coal prices, sources told S&P Global Platts.
Plummeting temperatures in Asia have spurred a rush for oil imports as alternative heating supplies, leading to an exponential rise in ESPO Blend premiums during the month.
Cargoes of Russia’s ESPO Blend crude loading in early December traded at premiums of around $5.95/b-$6.10/b to Platts front-month Dubai crude assessments, the highest since December 2019 when cargoes traded at premiums of around $7/b, Platts data showed.
Weather forecasts of cold weather across North Asia continue to keep crude demand elevated amid a global energy crunch that has cranked up prices for LNG and coal to record highs, sources said.
“The forecast is supporting ESPO demand with the winter starting earlier in Japan, it’s not that super cold yet [but] it’s the mood behind it,” a trader with a Japanese trading house said.
A shift to diesel for winter heating could also be the trigger for more ESPO Blend imports, traders said.
“[ESPO has] good quality for winter diesel,” a second trader with a North Asian refinery said.
Most of the December-loading ESPO crude cargoes were, however, bought by trading houses rather than regular ESPO Blend consumers — Chinese independent refineries — market sources said.
“Some traders are taking position. Not much oil left especially [for] arrival before 20th Dec,” a trader in Singapore said.
Spot differentials for early December-loading barrels surged due to higher demand for crude arriving before end-2021, traders said.
Wider Brent/Dubai EFS slows arb flows
Cash premiums for Far East Russia’s Sokol crude reached a 20-month high Oct. 15, as a wide Brent-Dubai Exchange of Futures for Swaps spread supported the sentiment for the Dubai-linked crude grade.
Most recently, India’s ONGC Videsh Ltd., or OVL, sold 700,000 barrels of Sokol crude to a South Korean end-user for Dec. 16-22 loading at a premium of around $5.80/b to Platts front month Dubai crude assessments, CFR Yeosu, traders said Oct. 15.
In September, November loading barrels of Sokol crude changed hands in the market at a premium of Dubai plus $3.50-$3.60/b, CFR Yeosu, traders said.
The Brent-Dubai Exchange of Futures for Swap, or EFS, a key measure of the relative strength of Brent-linked crudes versus Dubai-linked crudes, averaged $4.17/b in the month through Oct. 21, up from $3.64/b over September, Platts data showed.
“The arbitrage cargoes are not coming to Asia, so buyers are banking on the north Asian crude grades,” a Malaysia-based crude oil trader said. “Refining margins have been good to push up the premiums.”
“Higher ESPO and Sokol crude prices lately could be due to stronger winter demand,” a South Asia-based crude oil trader said.
Supportive gasoil and jet fuel cracks have propelled cash premiums higher for the middle distillate-rich crude.
Second-month gasoil and jet fuel cracks versus Dubai crude swaps averaged $14.83/b and $13.51/b during the month through Oct. 21, up from $10.77/b and $8.70/b, respectively, over September, Platts data showed.
The sentiment for Far East Russia’s Sakhalin Blend was also strong on the month, as spot premiums were in the mid- to high-$4s/b to Platts front month Dubai assessments, CFR, traders said.
Last month, December delivery barrels of Sakhalin Blend were traded at a premium of high $3s/b to Platts front month Dubai assessments, CFR, traders said.
“They [refineries] need to clear custom and port jams [and] try to get in [the cargoes] by Dec. 20,” another trader in Singapore said, referring to the urgency to meet end-2021 deadline for imports.
Source: Platts