Latin American crude differentials have plunged this week on a combination of rising freight costs and tepid demand, causing outright prices to decline faster than the broader oil complex.
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Register NowWhile all Latin grades assessed by Platts have fallen sharply this week, Argentinian crudes have led declines. Platts assessed the light sweet Medanito crude at a discount of $5/b to the Platts Latin American Brent futures strip, a drop of more than $5/b from last week, when Platts assessed Medanito at a premium, and the widest differential since Platts began assessing the blend in April 2021.
"Freight is getting more expensive and alternative grades are cheaper, so Medanito FOB differentials should be falling hard," a US-based trader familiar with Argentina crude said.
The price drop for Medanito, which typically as a 42.5 API gravity and a sulfur content below 0.3%, follows a similar decline for the competing Tupi crude from Brazil. At the start of August, Platts had assessed Tupi on FOB basis at a premium to the Latin American Dated Brent strip of $3/b. Since then, the crude has declined almost $4.50/b, with Platts assessing Tupi Aug. 31 at discount of $1.45/b to the Dated Brent strip.
Sources have said premiums for November delivery barrels of Brazilian crudes to Asia slumped on declining interest from Chinese independent refineries, coupled with greater supply from Brazil. At the same time, freight costs have risen sharply. VLCC freight rates from Brazil to Asia is costing more than $4/b, sources have said, compared to around $1.80/b at the start of the year.
Differentials for heavier crudes in the region have also widened. Platts assessed Colombia's heavy Castilla at a discount of $10/b to the Platts Latin American Brent futures strip, the weakest in more than two years. Castilla has weakened along with heavy Canadian barrels on the USGC, sources have said.