Healthy demand for Abu Dhabi’s light crude grade Murban in July has hurt values for its sister grades, such as light sour Umm Lulu and Das Blend, sources told S&P Global Commodity Insights.
Values for Umm Lulu have inched lower to Murban while those for Das Blend have widened further than where producer Abu Dhabi National Oil Co had pegged them, traders said.
For September-loading barrels, Umm Lulu offers in July were at a discount of around 10-15 /b to the IFAD Murban price while those for Das Blend plunged to almost $1/b to the Murban price, some refinery sources said.
“Lighter Umm Lulu and Das [Blend] offered cheap but not much interest,” a trader with a north Asian refinery said.
Demand for Murban has remained steady this month but is now increasingly facing pressure from its competitive US counterpart — WTI Midland, traders said.
At the Asian close July 21, the September IFAD Murban differential to September Dubai futures was pegged at $/b, down 39 /b from the previous day, S&P Global data showed.
“The US going into turnaround mode,” a trader with a Japanese trading house said, indicating that more of the country’s crude grades could be pushed East.
Further aiding Midland flows is a European market battling recessionary concerns and an eager effort to find alternatives to sanctioned Russian crudes, a Singapore-based trader said.
“Murban capped by Midland arbitrage to Asia,” the trader with the north Asian refinery said.
“Asian demand didn’t decline [so] no bearish sentiment [but] European side bearish mainly.”
The Brent-Dubai spread has also narrowed marginally, further allowing buyers in Asia to seek alternative grades from the West, a trader with a South Asian refinery said.
“Last month we were seeing Dated /Dubai differential going up like anything [but] this month it was coming down,” the trader said.
In July so far, the Brent Dubai Exchange of Futures for Swaps, or EFS, spread was pegged at $/b at close July 21, narrowing from the month’s high of $/b on July 5, data showed.
The EFS is often tracked as an indicator of North Sea low sulfur crude values versus Middle East high sulfur crude, and a wider positive EFS makes crude priced against Dubai, such as Murban, more economically attractive compared to Brent-linked ones.
“CPC Taiwan took Midland and hearing competitive [price] to Murban, [so] there is already a cap in place,” the same trader with the South Asian refinery said.
In a spot tender for October arrival, the Taiwanese refiner bought around 4 million barrels of WTI Midland crude at a premium of about $6/b over Platts September Dated Brent crude assessments, data showed.
Problems with Umm Lulu, Das Blend
Apart from pricing pressure, certain other factors have made purchases of Das Blend and Umm Lulu a slightly complicated matter, sources said.
Limited volumes of Umm Lulu available in the market make purchasing a fairly arduous affair, the trader with the South Asian refinery said.
“All said and done, you can’t replace Murban with Umm as Umm Lulu production is very less,” the trader said.
A richer naphtha content in Umm Lulu leaves buyers with little choice but to eye Murban as refinery margins for the product have seen only a marginal improvement from June, sources said.
“Umm Lulu contains more light and heavy naphtha,” the trader with the north Asian refinery said.
Naphtha cracks have averaged minus $/b month to date in July compared with minus $/b for June, data showed.
Logistics for Umm Lulu also make it a costly affair given limited production that makes it difficult to ship a 2 million barrel cargo of the grade compared with Murban, some traders said.
“There’s always a cost to coload with Murban [so] people rather buy whole VLCC [two million barrel cargo] of Murban,” the trader with the North Asian refinery said.
For Das Blend, a higher sulfur content makes it less desirable compared with other light sour grades while higher costs for desulfurization have further hampered demand, refinery sources said.
While some Das Blend was sold to Thailand and Japan at the start of the month, not much has moved since.
Refinery turnarounds in Japan ahead of the winter season have sapped the country’s demand for lighter grades this month, sources said.
Eyes will now be on the next round of official selling prices by ADNOC to see if the two grades’ dismal performance in July is reflected in their respective differentials to Murban, traders said.
“Not sure why ADNOC sets Umm Lulu at premiums to Murban. Not sure Umm Lulu deserves a premium,” the trader with the North Asian refinery added.
Source: Platts
