asia

Arbitrage flows of WTI Midland into Asia become uneconomical as prices rise


Highlights

Rise in WTI Midland price stems arbitrage flows

NYMEX WTI vs ICE Brent futures spread at 7-month high

Expectations of a strong bounce back in oil demand in the US and Europe has pushed up prices premiums for WTI Midland crude, rendering arbitrage cargoes of the grade uneconomical for many Asian refiners, traders said.

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September-delivery barrels of US WTI Midland crude were heard valued at premiums of more than $1.50/b to Platts Dated Brent assessments on a CFR Northeast Asia for much of June, with Taiwan’s CPC recently paying a premium of as much as $2/b for a 2-million barrel cargo arriving in September.

With WTI Midland premiums surging, most Asian refiners were instead opting for competing supplies from the Middle East, helped by benchmark Dubai’s widest discount to ICE Brent in nearly two years.

September-arrival barrels of WTI Midland DES CFR Yeosu were priced at $74.56/b at the Asian close June 22, while September-arrival barrels of Murban crude from Abu Dhabi and delivered into North Asia were priced at $74.01/b, according to Platts assessments.

“Buying interests from Asia [WTI Midland] are mostly thin except for Taiwan,” a Singapore-based trader said, as he noted that “price arbitrages are closed at the moment.” WTI Midland crude has historically been a key grade for CPC Taiwan’s refinery, and its baseload requirement for the crude might have made it willing to purchase at a relatively high premium, traders said.

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Despite CPC’s affinity to WTI Midland, traders saw the refiner’s purchase of West Africa’s N’kossa crude as a signal it too is switching to alternate supplies.

Even with low buying interest from Asian refiners, sellers don’t seem ready to reduce prices to entice buyers in the region, due to competing demand from Western refiners, traders said.

“WTI Midland cargoes may not come to Asia, as demand from US domestic and Europe markets is really good, so most of the cargoes will go there … Asia is not the main payer right now,” said a Singapore-based crude oil trader.

Implied demand for gasoline in the US climbed 10.3% in the week ended June 11 to 4.34 million b/d while implied distillate demand also surged by 27% to 9.36 million b/d, according to a recent report by the Energy Information Administration.

“It’s peak demand season for driving in the US, so demand for WTI Midland crude has increased with higher FOB prices,” added another Northeast Asia-based crude oil trader.

Total refinery net crude inputs in the US climbed to 16.34 million b/d, putting them at their highest since the week ended Jan. 17, 2020, and marking the first-time inputs have been above 16 million b/d since mid-February 2020. US Nationwide refinery utilization averaged 92.6% of capacity, up 1.3 percentage points from the week prior and more than 3% above the five-year average for this time of year.

This surge in US demand has also pushed the front-month NYMEX WTI versus ICE Brent futures spread to a seven-month high, with the spread seen at minus $1.94/b at the Asian close on June 22, having last been narrower on Nov. 10, 2020, at minus $1.89/b, S&P Global Platts data showed.

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“Offer prices for WTI Midland could subsequently come into Asia at [a premium of] high $1s/b [to Platts Dated Brent assessments, CFR] however, whether a trade can conclude at that level is another thing,” said a Singapore-based crude oil trader.



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