Asia returns for big buys of North Sea crude
Thu, Sep 26 2013
By Claire Milhench
LONDON (Reuters) - Up to five VLCC North Sea crude oil shipments could move to Asia this autumn after a long hiatus, as the trade becomes more viable following a fall in Brent's premium over Dubai crude.
Asia's low sulphur, or sweet, crude and condensate supplies are very tight as arbitrage flows were curbed in August.
Seasonal North Sea maintenance and protests in Libya which closed oil export ports pushed up the price of light, sweet alternatives such as Norwegian crudes and have kept Asia-Pacific sweet crude premiums high.
Malaysian crude premiums are as high as $9-$10 above dated Brent while Vietnamese grades are trading between $6-$11 above dated Brent, encouraging Asian buyers to look further afield.
Shipping fixtures are showing a sudden uptick in VLCC bookings to Asia for September, October and November, although traders warned that not all of these may actually go ahead, and total volumes are still down on 2012.
Five VLCC shipments would be equivalent to some 10.5 million barrels of oil leaving Europe this autumn, as each 270,000 tonne VLCC takes about 2.1 million barrels.
About three and a half parcels of North Sea Forties crude - each of 600,000 barrels - are needed to fill a VLCC. The Forties programme for October lists 17 cargoes.
Even a handful of VLCC shipments taking crude out of the region would significantly tighten the European market, pushing up differentials for North Sea crudes and helping to underpin Brent crude oil futures.
The VLCC Marbat, said to have been booked by Unipec to take crude to Yangpu, China, has already departed Hound Point in Scotland.
The VLCC Orthis and the VLCC Elisabeth I Angelicoussis were provisionally booked for mid-October for South Korea, and two other bookings are said to have been lined up for late October and November with buyers SK Energy and Hyundai.
FLOODGATES OPEN
Traders and analysts said that the narrowing of the Brent-Dubai spread had opened the floodgates for North Sea crudes to head to Asia, as this had made Brent-related crude less expensive.
The spread is currently trading at about $4.92, down from $7.10 earlier in September.
"The weaker interregional spread together with crumbling differentials is leading to a surge in Asian buying interest," said David Wech, an analyst at JBC Energy.
He noted that one VLCC is enough to tighten a typical monthly Forties loading schedule by over 15 percent.
"Hence, if two VLCCs load in the same month, it could cut supplies for Atlantic Basin buyers by almost a third, shifting the Brent curve back up," he said.
West African crudes have also been flying off the shelf for November with large volumes of Angolan headed to Asia. These have sold much more rapidly than for the previous month, when Brent's premium to Middle Eastern crudes deterred interest.
Traders cited a VLCC of Nemba crude booked by Mitsui for Japan and a number of cargoes to Indian and Chinese refiners.
"Asian buyers also appear to be taking more Angolan crude as Cabinda has returned to a premium against dated Brent for the first time since the start of July," said Wech.
The sudden rise in bookings to Asia is a turnaround from the handful of shipments that have occurred since South Korea said it would change its internal tax arrangements, making North Sea crudes less attractive to South Korean refiners.
Prior to that announcement, the South Korean arbitrage was one of the key supports for the North Sea crude market since a Free Trade Agreement was introduced in mid-2011.
But just one VLCC of UK North Sea crude went to South Korea in July and no Norwegian crude, noted Olivier Jakob, an oil analyst at Petromatrix. In August South Korea imported no North Sea crudes, he added.