Overhang of April cargoes, refinery turnarounds put pressure on Mideast sour crudes

2014-03-19

A combination of refinery turnarounds impacting spot demand for May-loading cargoes and an overhang of unsold April-loading cargoes has put pressure on the Middle Eastern sour crude market, trading sources said Tuesday.

While the market is in the early stages of the trading cycle, initial movements of May-loading cargoes were seen done at relatively steep discounts to official selling prices amid expectations of weak demand from refiners.

In total around 2.13 million b/d of refinery capacity across Asia is set to be shut for maintenance in May, while that figure falls slightly for June with around 2.03 million b/d expected to be taken offline.

Typically, Asian refineries which process sour crudes buy a certain percentage via term contracts and the rest through spot market. This means that as term purchases can not be deferred, the marginal spot buying sees a drop in volumes.

In addition, the lack of homes for some April-loading cargoes including Abu Dhabi's Murban and Umm Shaif grades has created an overhang of unsold cargoes, sources said.

"The main reason [for the weak market] is turnarounds. [Also,] there is still a bit of an overhang that traders are holding onto from the last [trading] month [April]," a trader said.

Coupled with this is the possibility that some Japanese refiners may try and sell some of their term crudes that can be re-sold. Saudi Arabia's term crudes, however, cannot be re-sold, sources said.

This possible additional supply is expected to put further pressure on the market.

So far, there have been two spot trades heard done for June-loading cargoes in the Middle East sour market. Sources said Murban was sold at a discount of around 50 cents/barrel to the grade's OSP.

The latest OSP for Murban -- for February-loading barrels -- places the grade at a $4.91/b premium to Platts front-line Dubai assessments. The premium is down 82 cents/b from the January OSP differential against Dubai.

In addition, Banoco Arab Medium was heard sold around a 50 cents/b discount to the Saudi Arabian Arab Medium OSP.

The latest OSP for Saudi Arabia's Arab Medium crude is for cargoes lifting in April and was set at a 45 cents/b discount to the average of Dubai and Oman, reflecting a cut of 25 cents/b from the March OSP.

Source from : Platts

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