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Ample Middle East crude seen to curb Urals flow to Asia


Brent's premium to Dubai slips to 21-month low; Opens arbitrage window for Russian Urals to move to Asia; Ample Mideast crude, weaker Oman may curb Urals flow

June 21, 2012 5:15 by

Ample supply and weaker values for Middle Eastern oil grades may curb exports of Russian Urals to Asia, even though a slump in Brent’s premium to Dubai in the swaps market has opened a West-East arbitrage window, traders said on Thursday.

Urals crude, priced on dated Brent, has become competitive in Asia against similar sour grades from the Middle East after the North Sea benchmark fell sharply against the Middle East price reference, Dubai.

Front-month Brent/Dubai Exchange of Futures for Swaps (EFS), a rough indicator of the opportunity for arbitrage, for July <DUB-EFS-1M> fell 49 cents from Wednesday to $1.54 per barrel, the lowest since $1.76 on Sept. 13, 2010, according to Reuters data.

“Unlike Brent, Dubai has managed to retain its strength in recent months, primarily on the back of expanding refining capacity in Asia, difficulties with acquiring and shipping Iranian barrels, as well as strong Chinese buying,” JBC Energy analysts said in a note.

Low freight rates and a contango market structure also make it economical to ship crude over a longer distance. Prompt spread for ICE Brent <LCOc1-LCOc2> flipped into contango this week on ample supply.

The open arbitrage has stepped up the pressure on Middle Eastern crude in Asia, reducing Oman’s premium to Dubai to about 70 cents a barrel on Thursday from more than $1 earlier this month.

Oman futures fell more than $3 a barrel on the Dubai Mercantile Exchange to settle at $90.68.

“We have more than enough crude here, and Oman came off a lot today,” a trader with a Western firm said.

He added that the Mediterranean market will be able to absorb the Urals.

Crude exports from Russia are expected to fall in July from the previous month as its local refineries are due to ramp up output to cope with summer demand.

“Urals is not likely to move here because of better demand in summer,” a trader with a North Asian refiner said.

(editing by Jane Baird)

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