Far East Russian crude premiums are being weighed down by a narrow Brent- Dubai spread, faltering middle distillate product margins and an expected drop in Chinese end-user demand, resulting in cash differentials for Sakhalin Blend, Sokol and ESPO Blend hitting fresh lows Monday.

Latest market talk in Asia indicated that Sakhalin Energy could have sold a total of five 730,000-barrel cargoes of light sweet Sakhalin Blend crude for loading in the second half of May and H1 June to end-users in South Korea, China and Japan, as well as an unidentified trading company.

The Russian producer was said to have received price differentials of between parity and a premium of around 8 cents/b to Platts front-month Dubai crude oil assessments on a CFR North Asia basis for the cargoes.

S&P Global Platts assessed Sakhalin Blend crude at a premium of 25 cents/b to Platts front-month Dubai on a CFR North Asia basis Monday, the lowest on record for the light sweet crude.

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Other benchmark Far East Russian export grades have also succumbed to downside pressure in the May trading cycle, with premiums for ESPO Blend and Sokol crude loading in May hitting record lows.

Platts assessed the second-month ESPO Blend crude at a premium of $1.80/b to Dubai Monday, the lowest since September 25, 2015, when it was assessed at a $1.60/b premium, Platts data showed.

Russia’s Rosneft kicked off the new trading cycle for ESPO on a bearish note last week, with market talk indicating it could have awarded its latest tender, offering two cargoes for loading over May 9-15 and May 22-27, at premiums of between $1.70/b and $2/b.

Trade sources said Surgutneftegaz could have awarded its tender offering three cargoes for loading over April 30-May 5, May 3-8 and May 5-10 at premiums in the range of $1.50-$1.80/b to Dubai on an FOB Kozmino basis.

In comparison, most of the April-loading ESPO crude cargoes received premiums in the mid-$2s/b in the previous trading cycle.

Meanwhile, Sokol was assessed Monday at a premium of $1.40/b to the average of Mean of Platts first-line Dubai and Oman assessments in May, the grade’s lowest cash differential on record.

Platts took into consideration several deals heard in the spot market, including ExxonMobil’s latest tender results, which indicated that the oil major could have sold a 700,000-barrel cargo each for loading over May 15-17 and May 25-27 to Shell and a Japanese company at premiums of $1.70-$1.80/b to Platts Dubai on a CFR North Asia basis.


The narrow Brent/Dubai Exchange of Futures for Swaps spread — a key indicator of ICE Brent’s premium to benchmark cash Dubai — has not been kind to the Far East Russian crude complex to date this year, market participants said.

One Singapore-based crude trader said the EFS spread of less than $2/b would keep the Dubai-linked Far East Russian grades less price competitive against several Asia Pacific, European and West African grades linked to the European benchmark.

“What used to be more than $2/b [spread last year] is barely mid-$1s/b this year … Dubai [-linked grades are looking] very expensive because of that,” said a Singapore-based sweet crude trader.

The second-month EFS has averaged $1.42/b to date in March, the lowest since August 2015, when it averaged 79 cents/b, Platts data showed.

The latest downtrend in refining margins has also worked against Far East Russian crude suppliers in recent weeks, traders said.

“It’s double, triple whammy really … narrow EFS is bad enough but weak margins and [North Asia’s] maintenance season [are also weighing on the premiums],” said a North Asian sweet and sour crude trader.

Platts data showed the second-month jet fuel/kerosene to Dubai crude swap crack has averaged $11.34/b to date this month, the lowest since August 2016, when it averaged $11/b.


Premiums for ESPO Blend crude have plunged as demand from baseload buyers in China dissipated for May-loading cargoes due to turnarounds, while China’s independent refiners used up most of their government-allotted crude import quotas, Asian traders said.

Crude imports by the independent refiners were expected to slow down as several have used up most of their allocation from the first round of import quotas.

These refiners will need to wait until June for the second batch of quotas to be allocated by the government before they can resume purchasing, market sources said.

A total 45.64 million mt of quota allocations were issued to 19 independent refineries in the first round in January.

An allocation was based on the volume the refiner had imported in the first 10 months of 2016.

This resulted in some refiners getting sufficient allocation in the first round this year to cover their entire year’s requirements and some that had imported a relatively small volume in those 10 months facing a shortfall, especially if they have raised runs this year.

Meanwhile, turnarounds in China are ramping up from March, with substantially more maintenance expected this year than in the same period last year, according to Platts China Oil Analytics.

About 550,000 b/d of primary distillation capacity will go offline in March, rising to almost 1 million b/d in April and 750,000 b/d in May. In comparison, a maximum 550,000 b/d was offline for turnarounds over March to May last year.

“Chinese [buyers] are the first tier market for ESPO… without demand from China, ESPO’s premiums will fall,” said another Singapore-based crude trader.

–Gawoon Philip Vahn, philip.vahn@spglobal.com
–Ada Taib, ada.taib@spglobal.com
–Edited by Wendy Wells, wendy.wells@pglobal.com

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