Asian demand for West African crudes is looking very strong for September after a weak July and August, because of much weaker differentials and an open arbitrage east, trading sources said Thursday.
Last month, Angolan and Nigerian crudes plummeted and differentials for almost all WAF grades hit multi-year lows, and this downward trend has continued over the past few weeks.
Dalia was assessed at Dated Brent minus $4.33/barrel Wednesday, the weakest level since mid-July 2011, while Cabinda was at Dated Brent minus $2.75/b, the lowest since early January 2009, Platts data showed.
Asian demand, particularly from Chinese refiners, had been quite subdued for July and August amid weak refining margins, high crude stocks and weak product cracks.
But for September, Asian demand for WAF grades has picked up, supported by a slight fall in WAF-East VLCC freight rates, a weaker ICE Brent complex and a slight improvement in refining margins, sources said.
"I think there is good support out there as differentials have been low enough to attract a lot of buying interest. It seems that some regular buyers are gradually coming back to buying WAF," a trader said.
A much narrower Brent/Dubai Exchange of Futures for Swaps spread, which has made Brent-related crudes more attractive to Asian refiners, has also stimulated demand for WAF crudes.
The September front-month EFS traded between $1.45-1.85/b this week compared with as high as $4/b a month ago, sources said.
"The arbitrage for WAF barrels east is open and it is looking very healthy, supported by a much narrower Brent/Dubai EFS," said a trader.
Some sources said that as values continued to fall, WAF could go trans-Atlantic.
"WAF could become so much cheaper that they might overcome transport economics and some opportunistic US Atlantic Coast refineries could even take some WAF crude," said a source.
