The differentials spread between Angolan crude grades Cabinda and Dalia has reached its widest point in more than a year, as the market shuns the heavier Dalia in favor of the lighter, more popular Cabinda, market sources said Friday.
On Thursday, Platts assessed Cabinda at Dated Brent plus $0.385/barrel, and Dalia at Dated Brent minus $1.665/b, resulting in a $2.05/b spread, the widest since October 18, 2011.
The disparity in the two grades' values stems more from Dalia's waning demand than from the steady support seen for Cabinda.
As has been the case in recent months, Cabinda's monthly program is already sold out for January, with Taiwan's CPC leading an early buying spree, scooping up four of the six available cargoes via tender.
This represents the largely monthly purchase of Cabinda by CPC since the July program.
China's Unipec picked up the final two Cabinda cargoes soon after, cleaning up the January program.
That demand has sent Cabinda differentials on a steady upswing. Since November 6, when Cabinda was assessed at Dated Brent plus $0.125/b, its differentials have climbed a cumulative 26 cents.
Dalia, on the other hand, has been on a bearish trajectory for the last few months, as demand for the grade weakens. Since September 29, when Dalia was assessed at Dated Brent minus $0.525/b, its differential has dropped by a cumulative $1.14/b.
The grade's January program still has three of six cargoes available.
"The main thing is the fuel oil cracks," a market source said of Dalia's weakness. "There are many heavy grades around, and that puts pressure on sellers."
Dalia contains the second highest concentration of residual fuel among Angolan grades, following only Kuito.
The low sulfur fuel oil crack spread -- the relative price of fuel oil to ICE Brent front-month crude futures -- has fallen to minus $15.54/b, the weakest level since April 28, 2011.
Also hurting Dalia is its high acidic content, sources said. Dalia's acidity of 1.5 mg KOH/gm is among the highest in West Africa, with only Chad's Doba, and Cote d'Ivoire's Baobab higher.
With the recent uptick in VLCC freight rates between West Africa and Asia, Chinese refiners, the traditional key buyer of Dalia, are opting instead for the closer Middle East acidic crudes, sources said.
The reverse in Dalia fundamentals marks the end of a bullish run for the grade during the first two-thirds of 2012.
"In August, Dalia was very popular, and it sold quickly," a source said.
As such, in early-September the spread between Dalia and Cabinda was only 75 cents, the most narrow since December 2010.
