Russia's Sokol crude premiums rebound in Asia on lower supply; stronger structure
http://www.chemnet.com Apr 10,2019 S&P Global PlattsThe cash differential for Russia's light sweet Sokol crude grade rebounded to $3.50/b levels in spot market trading in Asia this week as lower supply coupled with a revival in demand for the Russian grade serving as bullish factors.
India's ONGC was reported to have sold a 70,000-barrel cargo of the crude grade, loading over May 30-June 5 to an oil major at a premium of around $3.50/b to Dubai, according to traders in Asia this week.
Previously, Sokol differentials had dipped to $2.50/b as a flurry of light, sweet crude arbitraged from the US flooded the market, combined with weak naphtha margins, sources said.
Sokol was assessed at a premium of $3.5/b to front-month Dubai crude assessments as of 4:30 pm Singapore time (0830 GMT) on Monday, according to data from S&P Global Platts. The premium was last higher on March 19, where it stood at $3.6/b, Platts data showed.
For the week ended February 15, US crude exports reached a record high of 3.607 million barrels, according to data from the US Energy Information Administration.
Sinopec's 9.2 million mt/year Hainan and 5 million mt/year Dongxing refineries in southern China have purchased a cargo of US crude scheduled for loading on a VLCC by the end of March, and expected to arrive in China late-May, a refinery source with close knowledge of the matter told Platts last month.
With the delivery of those export cargoes scheduled for May-June, competing light crude barrels from Russia and the Middle East took a hit, market sources said.
Sokol crude is produced from Russia's Sakhalin I oil field, and has an API gravity of 39.7 degrees, a sulfur content of 0.18% and TAN rating of 0.12.
US Permian light sweet crude WTI Midland is of a similar quality, as it has an average API gravity of 40.4 degrees and typical sulfur content of 0.32%.
However, US exports have fallen since then to stand at 2.7 million barrels as of the week ended March 29, EIA data showed.
"Sokol is starting to re-balance again as arbitrage flows from the US has eased," a Singapore-based trading source said.
"Moreover EFS is also doing better this month, compared with the previous month," the trader added.
The front-month Brent/Dubai Exchange of Futures for Swaps, a key indicator of ICE Brent's premium to Dubai swaps averaged 71 cents/b in March, according to data from Platts. The spread has averaged $1.44/b so far in April.
A narrower EFS spread implies that Dubai-linked crude grades are priced relatively higher compared with Brent-linked crude grades, making them less competitive as such.
Trade sources also pointed to fewer cargoes loading in June as compared with May as another reason why premiums for June-loading cargoes are higher.
"We have only 10 cargoes this month as opposed to 12 last month," another Singapore-based crude trader said.
"Lesser supply this month could also be providing some support to premiums," he added.
Market participants would be watching out for the tender results from India's ONGC, who is offering 700,000 barrels of Sokol crude for loading over June 9-15. The tender closes Tuesday and is valid until Wednesday.