Premiums paid for Malaysia's Kimanis crude tumbled to a record low in Asia, as ample supply for loading in June coupled with weak middle distillate refining margins and a flow of arbitrage cargoes from the West weighed heavily on the light sweet grade, market participants said Thursday.
Platts assessed Kimanis crude at a premium of $2.50/b to Asian Dated Brent Wednesday, marking the light sweet grade's lowest-ever price differential reported by Platts.
Platts has first launched the publication of daily assessments for Kimanis crude on February 10, 2016.
June trading cycle for Kimanis crude got off to a poor start last month with ConocoPhillips selling a 600,000-barrel cargo of the Malaysian grade for loading in the first half of June to Ampol Singapore, an overseas trading arm for Caltex Australia, at a lower-than-expected cash differential.
Trade sources said the Australian buyer could have paid as little as a premium of $2.50-$2.80/b to Platts Dated Brent crude assessments for the light sweet crude, sharply lower than premiums of $3.50-$3.80/b that buyers had paid for May loading cargoes in the previous trading cycle.
In most recent trades, Petroleum Brunei was heard to have sold via spot tender, a similar-sized cargo of Kimanis crude for loading over June 29-July 2 at Dated Brent plus around $2.20/b, though full details could not immediately be confirmed.
In its previous tender, the supplier sold a cargo for loading over May 28-31 to an oil major at a premium of around $3.70/b to Dated Brent.
AMPLE SUPPLY, WEAK MARGINS, ARBITRAGE BARRELS WEIGH IN
Trade sources said a total of eight 600,000-barrel cargoes of Kimanis crude are scheduled to be loaded in June, with Petronas, ConocoPhillips and oil major Shell each holding two cargoes. Petroleum Brunei and Indonesia's Pertamina held one cargo each.
Market participants were caught by a surprise, however, when Pertamina issued a spot tender late last month, offering its Kimanis cargo for loading over June 5-9.
Pertamina typically takes its own monthly share of Kimanis crude supply into its own system and it is rare to see the company offer a cargo of the light sweet crude in the spot market, regional traders said, adding that the supply pool of the light sweet crude is larger than the previous trading cycle.
Furthermore, competition from light sweet crudes in the Mediterranean and West African markets kept suppliers on their toes as several regional end-users including Thailand's PTT and Taiwan's CPC continued their search for cheaper barrels outside of East Asia.
CPC was said to have bought a VLCC of Azerbaijan's Azeri Light crude from Socar and 1 million barrels of Angola's Cabinda crude for loading in June from an unidentified seller, through a recent tender.
Market talk also indicated that PTT could have bought around 1 million barrels of Algerian Saharan Blend crude in its latest buy tender seeking sweet or sour crude for delivery to the IRPC refinery in Rayong over June 25-July 10.
The Thai company also picked up a cargo of Kimanis crude, paying a premium of about $2.60/b to Dated Brent on a CFR basis, a source with close knowledge of the deal told Platts.
"Mediterranean crudes like Azeri and Saharan Blend have been moving East on a regular basis this year so far ... [West Africa to Asia] freight rates might not be so attractive these days but buyers are still eyeing Angolan barrels as well, that's for sure," said a Singapore-based trader.
Traders also pointed to lackluster middle distillate product margins as one of the main culprits behind the bearish market.
Regional middle distillate crack values have been falling steadily in recent weeks, with the second-month gasoil/Dubai swap crack at $9.65/b Wednesday, its lowest since hitting $8.94/b on April 20. The second-month jet fuel/kerosene to Dubai swap crack also fell to a two-week low of $10.79/b Wednesday.
LESS SUPPLY FROM PETRONAS
Petronas, a key supplier of Malaysian light and medium sweet crudes, has been less active in the spot market so far this year, regional traders said, indicating that the state-run oil and gas company has not offered any cargoes of Labuan, Miri, Tapis and Kikeh crude in the current June trading cycle.
Several trade sources said the major Malaysian crude supplier could be stepping up efforts to control the overall supply volume in the spot market in a way to help support prices.
In the previous trading cycle, Petronas did not offer any cargoes of Kimanis and Labuan crude for loading in May as the company had other commitments, a market source with close knowledge of the state-run entity's monthly crude sales told Platts last month.
"It's probably the company's strategy to protect value amid the current low crude price environment," said another Singapore-based trader.
"When crude prices were over $100/b, suppliers weren't really bothered by a $1-$2/b drop in crude premiums but obviously it's different now where every cent matters," the trader added.
