By Clyde Russell
LAUNCESTON, Australia- Refiners across the top-importing region of Asia are being forced to adapt buying patterns as the additional output cuts by Saudi Arabia have reduced availability of their preferred medium sour grades of crude.
The kingdom, the top oil exporter and de facto leader of the OPEC+ group, on Sept. 5 extended its voluntary production cut of 1 million barrels per day (bpd) till the end of the year, while Russia, the second largest producer in the group, extended its 300,000 bpd output cut over the same period.
Reacting to tighter supplies, global benchmark prices have risen – Brent reached $90 a barrel last week for the first time in 10 months.
But the main benchmarks are toward the light sweet end of the crude spectrum, whereas as the impact of the OPEC+ output cuts has been felt most strongly in the medium sour segment.
Many of the newer, complex refineries in Asia prefer medium sour crude as it offers a higher yield of middle distillates such as diesel and jet fuel. And the lower exports from Saudi Arabia and several other Middle East producers, such as Kuwait and the United Arab Emirates, has left them scrambling to secure supplies.
As a consequence, prices for these grades have outperformed the light sweet benchmarks.
The Brent-Dubai exchange for swaps which measures the difference between Brent and Dubai, a medium crude, has narrowed and briefly flipped from its usual premium for Brent to a discount.
Brent slipped to a discount of 17 cents a barrel to Dubai on Aug. 28, before recovering slightly to end at a premium of 85 cents on Monday.
However, it’s worth noting that at the start of this year Brent commanded a premium of $5.97 a barrel over Dubai, and it reached as high as $17.50 in the aftermath of Russia’s invasion of Ukraine.
A medium sour crude such as Iraq’s Basrah Light which historically has traded at a discount to dated Brent is currently commanding a premium of $2.63 a barrel.
The higher prices for medium crude grades is impacting the ways in which crude is flowing around the world.
India is a case in point, with Asia’s second-biggest importer switching to Russian Urals crude and away from more expensive Middle East grades.
Russian crude has been sold at a wide discount to other grades as a result of Western sanctions against Moscow, but this discount has narrowed sharply in recent weeks.
The reason is that India’s refiners are struggling to source medium crudes such as Urals and have little choice but to pay more for the Russian grade.
India’s imports from Iraq were 29.17 million barrels in July, the highest month so far this year, but they dropped to 26.43 million in August and are on track to drop again to around 24.63 million this month, according to data compiled by commodity analysts Kpler. – Reuters
