The crude oil market in Asia was on the lookout for results from a hotly anticipated Iraqi Basrah crude tender Wednesday morning, hoping to draw cues on the strength of the Middle East sour complex, traders said.
The tender, in which SOMO offered 2 million barrels of Basrah Light, and 1 million barrels of Basrah Heavy, will likely provide further direction for the continuing strength in the medium and heavy sour crude complex this month.
Cargoes of medium to heavy sour crude grades such as Qatar Marine and Banoco Arab Medium were reported to have traded in the May spot market at small premiums to their respective OSPs this week.
Meanwhile, light sour grades are trading in discounts as deep as 20 cents/b to their OSPs.
The M1-M3 cash Dubai structure has averaged 60 cents/b to date this month, fairly steady from 62 cents/b over February. It was hovering at 63 cents/b in mid-morning Asian trading hours (0300 GMT) on Wednesday.
Heavier crudes with higher sulfur content and bigger fuel oil yields have held the price advantage this year, with a dearth of such barrels in the market from Venezuelan and Iranian supply shortages.
At the same time, Asian sour crude benchmark Dubai has maintained its premium over light sweet crude grades consistently this month. May cash Dubai has averaged at a 13 cents/b premium over May ICE Brent futures, and a lead of $9.11/b on average this month over May NYMEX light sweet crude futures. All comparisons are as of 0830 GMT or 4:30 pm Singapore time.
"Will be interesting, Asia formula again, so [it] will be Eastern buyers looking," a second Singapore-based trader said.
Market participants said they expect supportive premiums for both Basrah Light and Heavy crude grades, but perhaps a notch lower than previous tenders.
Last month, SOMO sold up to 5 million barrels of Basrah, with its Light grade fetching a premium of over 70 cents/b to the March Basrah Light Asia official selling price, and the Heavy fetching $1.15/b, and then $1.45/b premiums over the March Asia OSP in two separate awards.
The Brent/Dubai Exchange of Futures for Swaps spread, a barometer of arbitrage flow to the East, has not breached $1/b since January 22. A narrower EFS, such as the current sub-$1/b level, typically prompts buyers in Asia to source Brent-linked crudes instead of paying for relatively expensive Dubai-linked barrels.
However, the EFS remains narrow, indicative of bleak demand for arbitrage cargoes compared with buying appetite of Middle East sour crude this month, traders said.
The May Brent/Dubai EFS has averaged 46 cents/b to date in March. It was pegged at 78 cents/b as of 0300 GMT Wednesday.
--Eesha Muneeb, eesha.muneeb@spglobal.com
--Avantika Ramesh, avantika.ramesh@spglobal.com
--Edited by Geetha Narayanasamy, geetha.narayanasamy@spglobal.com