Low sulfur crude suppliers across Southeast Asia and Oceania may have to put in extra effort to clear their June-loading barrels this month as close to 2.5 million barrels of Vietnamese light Bach Ho crude are expected to flood the Asian secondary market, regional traders said Tuesday.

Award details of recent spot tenders from Vietnam raised concerns among rival producers in neighboring Malaysia as PetroVietnam Oil Corp. recently sold 82,500 b/d of light Bach Ho for loading in June to Socar Trading Singapore, Gunvor, Vitol and Glencore.

Traders said the entire lot being bought by trading companies made other regional producers worried as there was a high chance that most of the medium sweet Vietnamese crude will slip back into the secondary market.

“You could say this was possibly the worst-case scenario for [rival] producers [across Asia and Oceania]. The best outcome [for rival suppliers] would have been for a big Chinese end-user to have taken the entire [June barrels offered by PV Oil] … but it wasn’t to be,” said a Singapore-based sweet crudes trader.

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Light Bach Ho, with a gravity of 39-40 API, was rarely offered in the spot market in recent years. However, it was offered via spot tender late last month ahead of the upcoming turnaround at the country’s 130,000 b/d Dung Quat refinery, market sources said.

Binh Son Refining and Petrochemical, operator of the refinery, plans to shut the entire plant over May-July.

PV Oil has not offered light Bach Ho crude in the spot market since July 2016.

Market participants had been expecting PV Oil to sell some Bach Ho crude, but the large volume took many traders by surprise.

SUPPLY GLUT IN SOUTHEAST ASIA, OCEANIA

Traders said that they expected strong competition among regional suppliers in the June trading cycle since the 2.5 million barrels of Bach Ho would add to the already growing pool of light and medium sweet crude supply in the Asian spot market this month.

A slew of new loading programs for the Oceania crude complex emerged in recent weeks with early indications showing ample supply of light sweet Australian crude for loading in June.

The Japanese consortium of Mitsui and Co. and Mitsubishi Corp., or MIMI, holds a 600,000-barrel cargo of Cossack crude for loading over June 11-15, while Santos has a similar-sized cargo of Mutineer crude for loading over June 16-20, a market source with direct knowledge of the monthly Australian loading program said.

Itochu was likely to offer some light sweet Barrow Island crude for loading in June, while Australia’s Woodside Petroleum might offer some light sweet Balnaves and/or Varanus crude for loading in June, although no details could be verified.

Vietnam’s PV Oil offered additional 2.05 million barrels of various medium and heavy sweet grades including Ruby, Chim Sao, Te Giac Trang and Thang Long for loading in June, apart from the Bach Ho.

MALAYSIAN CRUDE PREMIUMS UNDER PRESSURE

In Malaysia, fresh loading programs for its benchmark export grades including Kimanis and Kikeh have yet to emerge, but sentiment was fragile as the large volume of Bach Ho for loading in June could hamper regional end-user demand for light sweet Malaysian crudes.

Kimanis, for one, with a gravity of around 38.6 API, with sulfur content of 0.06%, often competes directly with various medium sweet Vietnamese grades like Chim Sao, Thang Long and light Bach Ho, as they are coveted for their yield of middle distillates such as jet fuel/kerosene and vacuum gasoil.

“There are several well-known refiners [in Southeast Asia and Australia] that are flexible to process either Malaysian or Vietnamese [crudes],” said a North Asian sweet crude trader, citing Thailand’s Rayong refinery, Malaysia’s Port Dickson plant, Australia’s Kwinana, Lytton and Geelong refineries as examples.

“If the end-users find Bach Ho more economical, then the Malaysian [grades] could be pushed [back to become the] second or even third option,” the trader added.

Sources said that the four trading companies could have paid a premium of between 10 cents/b and $1.20/b to Platts Dated Brent crude assessments on an FOB basis for the June-loading Bach Ho crude.

Taking the latest tender award details into consideration, S&P Global Platts assessed the Vietnamese grade at a premium of $1.10/b to Platts Dated Brent crude assessments on an FOB basis Monday, the lowest cash differential since July 15, 2016 when it was pegged at a premium of $1/b.

In comparison, Malaysia’s light sweet Kimanis crude was assessed at a premium of $1.80/b to Dated Brent crude assessments on Monday, while Kikeh was assessed at a premium of more than $2/b.

–Gawoon Philip Vahn, philip.vahn@spglobal.com
–Edited by E Shailaja Nair, shailaja.nair@spglobal.com

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