Premiums paid for Malaysia's benchmark light sweet crudes extended their decline to a fresh two-year low Monday as fragile petroleum refining margins and competition from non-regional grades dented end-user demand, while the influx of new Kimanis crude added to concerns over recent oversupply conditions, traders said.
Malaysia's Labuan crude was assessed at a $4.70/barrel premium to Dated Brent on Monday, its lowest level since touching a premium of $4.49/b on August 21, 2012, while the premium for Tapis crude to Dated Brent fell to $2.30/b on Monday, its lowest level since August 15, 2012, when the crude was assessed at Dated Brent plus $2.30/b.
Kikeh was last assessed at a premium of $4.40/b on Monday, its lowest point since $3.92/b on August 13, 2012.
The differential for Labuan crude fell more than 46% from its year-to-date high of Dated Brent plus $8.20/b touched in January, while the premiums for Tapis and Kikeh fell more than 60% and 46% from their 2014 peaks, respectively.
Trade participants said sentiment on Malaysian light sweet crude has been dampened by sharp volatility in light and middle distillate crack spreads, while weakness in the broad Brent complex prompted buyers to consider looking at more economic light sweet crudes outside of the region.
"There's plenty of downside risk in [light and middle distillate] crack values in [the] current oversupply conditions.
Perhaps that's why even the regular buyers [of Malaysian crude] are hesitating to make their bids," a sweet crude trader based in Singapore said.
"Refiners especially want to see some kind of consistency in product cracks but that's clearly not happening, so there's little support for regional light sweet grades like MCOs," another Singapore-based sweet crude trader said.
The second-month naphtha to Dubai swap crack averaged minus $5.86/b in October, compared with the average of minus $3.27/b in September, while the second-month gasoil to Dubai swap crack averaged $14.37/b last month, lower than the average of $14.60/b in September, Platts data showed.
A third Singapore-based trader said there was scant support for Malaysian crudes from baseload buyers this month.
"There are too many cargoes [being offered] from here [Asia Pacific region], from West Africa and Libya...there is a lot of competition," the trader said.
Market sources said that earlier in the month Petronas had sold a 300,000-barrel cargo of Labuan crude for loading over December 11-16 to a trader at a premium of around $4.70-4.90/b to Platts Dated Brent crude oil assessments, lower than the $5.80-5.90/b premium fetched in its previous tender for November-loading cargoes.
More recently, market talk indicated that at least two December-loading Tapis crude cargoes had been placed at a premium of around $2.00-2.50/b to Dated Brent, lower compared to the $3.30-3.50/b premium heard done for November-loading cargoes.
INTRODUCTION OF KIMANIS CRUDE
The introduction of Malaysia's new Kimanis crude in the regional spot market may continue to put downside pressure on Malaysian crude oil differentials in the coming months, trade participants also said.
In September, the first spot cargoes of Kimanis crude were offered in the market for November-loading, while trading sources indicated that the December program for the new light sweet crude contains at least four 300,000-barrel cargoes, with Petronas, Murphy Oil, Shell and ConocoPhillips holding a cargo each.
"Timing [of the new crude introduction] was pretty bad," the second crude trader said, indicating that "end-users looking for light sweet crudes have so many options available with plenty of African grades being offered at attractive levels, so these additional barrels [of Kimanis crude] will extend this oversupply environment."
At least two cargoes of December-loading Kimanis crude were heard to have been placed, although trade details could not immediately be confirmed.
Market sources said Petronas had sold a cargo of December-loading Kimanis crude to an oil major at a premium of around $3.50/b to Dated Brent, while another cargo of December-loading Kimanis was heard being discussed at a premium of around $2.70-$2.90/b by another equity holder Murphy Oil.
"The crude is relatively new [to the market], so it is trading a bit lower than its actual value as buyers are still familiarizing themselves with the crude," a fourth sweet crude trader said.
Kimanis crude is produced in the Gumusut-Kakap field offshore Sabah, which is Malaysia's second deepwater development after Kikeh.
Crude from the Gumusut-Kakap field is expected to be similar in quality to the neighboring Kikeh field, where crude has an API of 34.91 degrees and sulfur content of 0.105%.
