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Low Murban crude price may prompt shipment to Europe

The Murban price was set at a premium of 51 cents to the July average for Dubai crude, the lowest differential in at least six years.

August 18, 2010 2:42 by

Traders may be making the rare move of shipping Murban crude to Europe after the price of the Abu Dhabi flagship grade fell to multi-year lows and the Brent/Dubai spread remained wide, keeping the arbitrage window open, industry sources said on Wednesday.

Earlier this month, Abu Dhabi National Oil Co (ADNOC) cut the July retroactive selling price of Murban crude by $1.80 per barrel to $73.00.

The Murban price was set at a premium of 51 cents to the July average for Dubai crude, the lowest differential in at least six years, according to Reuters data. One trader even noted that the differential could be the lowest for the light sour grade in 11 years.

Middle East grades are pressured by rising competition from Russian ESPO crude and weak Asian demand after recent port and refinery mishaps forced the diversions of tankers and deferment of crude deliveries.

This prompted some traders to say that Murban barrels might have already been moved to Europe recently, although details were not available and the market talk could not be confirmed.

“With better Murban OSP and EFS wide open, there is still a good chance to move Murban to Northwest Europe,” said another trader.

ADNOC is not immediately available to confirm the milestone for the Murban differential.

“You can see how low Murban is considering the gas oil cracks is quite strong now,” the first trader said.

Gas oil cracks stood above $11.00 a barrel to Dubai crude on Wednesday, around nine-week lows, but still strong compared with last year’s crack levels of around $8.00 a barrel.

Front-month Brent/Dubai Exchange of Futures for Swaps (EFS) for September jumped to $2.75 a barrel on Aug. 4, the highest since December 2008 when OPEC producers began record supply curbs, making Middle East crude more attractive.

Front-month October EFS has since eased to $1.58 a barrel on Wednesday, after hovering around $2.00 for the past week.

Oil majors which have refineries in Northwest Europe are more likely to buy Murban, traders said.

But Murban must be co-loaded with other grades if it were to be moved to Europe because Murban cannot be loaded on to a full Very Large Crude Carrier (VLCC) due to draft restriction, they added.

Several October-loading Murban cargoes were sold to Thailand and India at a discounts of between 5 and 8 cents a barrel to ADNOC over the past week.

The differentials recovered sharply from deep discounts of between 20 and 30 cents a barrel to ADNOC fetched for September-loading Murban cargoes sold last month.

The wide EFS in early August had also prompted Mercuria and Shell to also move a VLCC each of Oman crude in August and September, respectively, to the U.S. West Coast.

(Additional reporting by Florence Tan; Editing by Ramthan Hussain)

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