The Middle East sour crude market staged an unexpected recovery in July as tightening of light oil products supply globally led to stronger product margins and revived refinery run rates across major demand centers in Asia, boosting sour crude differentials.
The Singapore FOB gasoil/Dubai spread saw the highest upward momentum, touching an eight-month high of $17.46/b on July 22 -- last seen at this level on November 19, 2018. The crack averaged $16.53/b to date in July, up from $15.68/b over June, according to Platts data.
Crude traders in Asia had initially expected bleak demand for September- loading barrels of Middle East sour crude on the back of lower refinery run rates and the autumn maintenance season. But resurging demand won out over lower requirements from some refineries undergoing maintenance in the end.
In addition, refinery outages and the hurricane season in the US had pulled RBOB prices up and US gasoline stocks lower during the month.
The closure of Philadelphia Energy Solutions' 335,000 b/d refinery after a fire and subsequent bankruptcy filing raised the possibility of 150,000 b/d of gasoline supply shortage from the US Atlantic Coast market toward the end of June, Platts had reported earlier.
LIGHT SOUR CRUDE CLEARS DISCOUNT TERRITORY
Light sour crude barrels originating from the Persian Gulf saw a U-turn in fortunes in July.
Murban, Abu Dhabi's flagship light sour grade, quickly dove into deep discounts upon the release of the ADNOC official selling price, or OSP, early in the month. But in the second-half of the month, the grade had flipped to premiums above the OSP.
The Murban differential to its OSP went from minus 5 cents/b on July 1, to minus 40 cents/b by July 8, as traders perceived the ADNOC-issued price as overvalued in a bleak demand environment. Mid-July, market participants reported several million barrels worth of sour crude cargoes having been placed into China overnight as independent refiners ramped up run rates on better product margins.
Murban differentials fluctuated for a few more days before eventually finding a solid direction upward, as sellers found their way to higher demand across Asia. The grade rose from a discount of minus 20 cents/b on July 16 to OSP-parity the next day, and then crossed the zero threshold into small premiums by July 19, according to Platts data.
A cargo was reported sold to a North Asian refiner at similar levels in the spot market the week of July 22.
ESPO, OMAN PREMIUMS SURGE
Similarly, demand for medium sweet ESPO Blend and medium sour Oman crude, both North Asian refinery staples, also shot up in the second-half of the month as market forces found a clear upward direction. ESPO price differentials shot past $5/b levels, from the $3-$4/b range that it traded in the month prior.
Meanwhile, buying appetite for Oman was reflected in its divergence from Dubai premiums. The grade averaged flat to Dubai for most of June, but slowly climbed to be valued as high as 85 cents/b above September Dubai at one point in July. Overall, it averaged at a premium of 42 cents/b over Dubai so far in July, Platts data showed.
Crude traders attributed some of the volatility to demand coming in waves from different pockets of Asia.
Platts assessed September cash Dubai at $63.17/b for July 24, and September cash Oman at $63.95/b, a premium of 78 cents/b over cash Dubai for the day. - Source: Platts-