Freight costs suppress Thai appetite for Mediterranean crude

Crude oil trade flows from the Mediterranean to Southeast Asia could remain slow for the rest of the fourth quarter with Thai refiners maintaining their low sulfur crude procurement choices mainly within the regional markets, as the high cost of shipping oil from West to East hampers demand for European arbitrage deals.

Cash differentials for various crude grades in Malaysia and Oceania have been rallying over the past few trading cycles, but Thai end-users have had limited options when trying to seek cheaper sweet crude barrels outside the region as shipping rates for the Europe-Asia route remain unattractive.

“Nothing is cheap these days … but freight rates are crazy high, so [the Mediterranean-Asia] arbitrage is not [easy],” said a trading manager at state-owned Thai energy company PTT.

Fixtures for November-loading cargoes seen by S&P Global Platts showed that Vitol has fixed a Suezmax tanker, the Seaprince, for a Libya-Singapore voyage, loading November 5, at a lumpsum rate of $2.4 million.

ExxonMobil fixed the Kaveri Spirit for a Ceyhan-Singapore voyage with an option for Sriracha, loading November 17-19, at $2.35 million.

In comparison, fixtures for August-loading cargoes were seen at much lower rates: Unipec had previously fixed a Suezmax, Kriti Sfakia, for a Libya-Singapore voyage with options, loading August 27-28, at a lumpsum rate of $1.925 million.

Socar’s shipping arm United Maritime Logistics had fixed the Agistri for a Ceyhan-Singapore voyage, loading August 17, at a lumpsum rate of $1.8 million.

Meanwhile, the VLCC freight rate on the key Hound Point-Far East route has sustained at a nine-month high since the start of November — Platts last assessed this voyage at a lump sum rate of $5.4 million, or $20/mt.

Shipping sources said overall VLCC market sentiment was firm on seasonality, as the strong demand in Europe during winter typically boosts freight rates.

Mediterranean grades including Azerbaijan’s Azeri Light and Algeria’s Saharan Blend have struggled to attract Thai buyers in recent months, with no crude carriers from Ceyhan and Arzew seen reaching the Southeast Asian consumer so far in the fourth quarter, according to Platts Analytics vessel tracking software cFlow.

In comparison, Thailand imported around 1.4 million barrels of crude from Algeria and Azerbaijan combined in Q3, 1.7 million barrels in Q2 and 2.5 million barrels in Q1, according to data released by the Thai customs department.

STRONG PRODUCT MARGINS OFFSET CRUDE PREMIUMS

Thai refiners often turn to the spot Mediterranean market for cheaper alternatives when light sweet Malaysian and Australian crudes become expensive, but the recent uptick in Asian product margins could mean that the end-users should be able to endure the latest uptrend in regional crude premiums, traders said.

Among recent spot tender deals concluded, Thailand’s PTT was said to have purchased on behalf of the IRPC refinery in Rayong, a total of around 1.3 million barrels of Australian Cossack crude and Malaysian Kidurong crude for delivery over November 15-December 10.

Prior to that, trade sources said the company bought a combined 1.6 million barrels of US Eagle Ford crude, Brunei’s Champion crude, Malaysia’s Kidurong crude and Kimanis condensate for delivery over late October to early November.

Industry sources noted that it was rare to see the company filling more than two thirds of its monthly spot tender shopping basket with regional crude grades.

“Regional premiums are very high these days … it’s a niche market. But [product] margins have been good so that’s going to somewhat compensate [rising spot crude prices],” said a Singapore-based sweet crude trader.

Earlier this month, state-owned Petronas raised the November Malaysian Crude Oil official selling price differential by 55 cents/b from October to a premium of $4.50/b to Platts Dated Brent crude assessments — the highest differential since February 2016, when it was set at a premium of $4.60/b, Platts data showed.

Light sweet grades in Oceania have also rallied in recent months with Papua New Guinea’s Kutubu crude assessed at an average premium of $2.63/b to Platts Dated Brent in October — the highest since averaging $3.08/b in March 2016.

Australia’s Cossack crude was assessed at an average premium of $2.48/b to Dated Brent in October, also the highest level since March last year when the differential averaged $2.88/b.

Refining margins in Asia have also been tracking the regional crude premiums higher, with Singapore middle distillate product cracks touching multi-week highs recently.

The second-month jet fuel/kerosene crack against Dubai crude swap rose to $14.17/b last Friday — the highest since $14.34/b on October 2, Platts data showed.

The second-month gasoil crack against Dubai hit $14.33/b last Thursday — the highest since September 11, when it was assessed at $14.48/b, the data showed.
Source: Platts