Weakening crude refining margins and middle distillates cracks have led to low buying interest among Northeast Asian refiners for prompt May loading ESPO blend crude, trading sources said Thursday.
Three to four of the 19 ESPO blend crude cargoes, each 100,000 mt in size, that are scheduled for loading from the port of Kozmino in May remain on offer and have yet to find buyers, sources said.
The export level for May is the highest monthly figure since exports began from the port in December 2009, and follows the completion of phase two of the ESPO pipeline in December 2012.
A fall in prompt refining margins, led by weakening gasoil cracks, was the main reason that affected demand for the grade from Northeast Asian refiners.
ESPO as a short haul crude may at times be considered by some Northeast Asian refiners as an incremental barrel when refining margins are good. However, with weak refining margins, these refiners have yet to step in to buy any extra barrels, traders said.
The Dubai crude cracking margin basis Singapore has averaged $1.22/barrel so far through April, in stark contrast to an average of $3.84/b through March, data from consulting engineering firm Turner, Mason & Co. showed.
As for gasoil, the first-month Singapore gasoil swap crack to Dubai crude swap has averaged $16.94/barrel since April 1, lower than the March average of $17.90/b, and sharply lower than the average of $21.23/b for February, Platts data showed.
When refined, ESPO blend crude can yield as much as 40% middle distillates, a trader said.
"There is an overhang of May ESPO [cargoes]... three to four cargoes are still unsold," a trading source said.
Another trader at a trading house however, said he estimated two to three May-loading cargoes are still unsold. "The bids are around low $2s/b [to Dubai crude assessments] with the offers quite wide [away] in the high $2s/b levels," he added.
Earlier this week, an early-May loading cargo of ESPO blend crude was sold by a Japanese trading house at a premium in the low $2s/b to Platts front-month Dubai crude assessments, sources said.
The cargo was heard subsequently sold as two partial stems to refiners in Thailand, sources added. But further details were not known.
Traders were now awaiting results from Russian TNK-BP tender's offering a 100,000 mt cargo of ESPO blend crude for June 1-10 loading from Kozmino. The tender has closed Wednesday and will provide a price direction for the remaining May loading stems.
One trader said he heard bids submitted into the tender were at premiums of $2-2.50/b to Platts front-month Dubai crude assessments on a FOB basis.
"There is a lot of bloodshed [for the May market]. This early tender from TNK-BP isn't going to help clear the length in ESPO," a sour crude trader from a western trading house said.
ESPO for loading 15-45 days forward was assessed at a premium of $3.15/b premium to second-month Dubai cash assessments on Wednesday, down 27 cents/b from the start of April and a fall of 69 cents/b from the recent high of $3.84/b assessed on March 8.
