Asian buyers not often seen in the West African crude market have been making an appearance recently amid low values, a falling Brent/Dubai spread, and a flat price at a 16-month low, trading sources said Tuesday.
"Latin [American] grades are weak. WAF crude has an overhang. North Sea is still available. Brent-related crudes will head to Asia [in this environment]," a trader said.
With the arbitrage from West Africa to the east looking attractive, Taiwan's Formosa, Malaysia's Petronas and Japan's TonenGeneral have emerged as active players in the past month, sources said.
Angolan crudes, whose values have plummeted to multi-year lows since August, are mostly being bought.
TonenGeneral, with three refineries and a capacity of 556,000 b/d, has bought two cargoes of Angola's Kissanje and a cargo each of Angola's Nemba and Pazflor in the past month, sources said.
"Yes, they are fairly new to buying WAF. But previously the refinery was owned by ExxonMobil, so occasionally cargoes went there I think," a second trader said.
"[TonenGeneral] bought Kissanje at the end of September and in October they have bought three cargoes [Kissanje, Nemba and Pazflor]. They are trying to move away from being reliant on Persian Gulf grades," the trader said.
Formosa bought a cargo of Angola's Girassol for September loading, while Malaysia's Petronas bought a cargo of Girassol for October.
Asian demand, especially from Chinese refiners, for West African material had been subdued for July and August amid weak refining margins, high stocks, and weak product cracks.
Demand picked up for September and October, supported by lower VLCC freight rates, the weaker ICE Brent complex, and a slight improvement in refining margins, sources said.
"There is good support out there as differentials have been low enough to attract a lot of buying interest. It seems that some buyers are gradually coming back to buying WAF," a third trader said.
A narrower Brent/Dubai exchange of futures for swaps spread has also made Brent-related crudes more attractive to Asian refiners, sources said.
The front-month EFS has traded between $1.00-1.43/barrel in the past week, compared with levels as high as $3/b over a month ago.
