Wednesday, April 6, 2016

Asia buys more Mideast heavy crude as Latam supplies fall

Asian oil buyers are seeking more heavy crude from the Middle East this year as Latin American supplies have become more expensive relative to other grades, while port and production outages have disrupted exports from Venezuela, Peru and Brazil.

Strong demand for replacements for South American crudes has driven up spot premiums for grades such as Iraq's Basra Heavy for loading in April and May, and buyers are also looking more to Saudi Arabia, Kuwait and Iran for oil of similar quality.

The switch comes as US oil prices strengthened against other regional benchmarks late last year after Washington lifted a ban on US crude exports, a move that could help producers in the United States work down a domestic supply surplus.

Unplanned outages at ports and pipelines and necessary maintenance work at oilfields all across South America have also tightened exports from a region that pumps about a tenth of the world's oil. "This is mainly in Venezuela, where the outage of a major port has led to the loss of 300,000 bpd of crude exports," FGE analyst Tushar Bansal said.

Venezuela's output could fall by 400,000 bpd this year due to a lack of investment in the upstream sector and not enough funds available to buy light oil for blending, Bansal said.

Latin American crude sold to Asia fell 1% in the first three months of 2016 from a year ago, while Middle East exports to Asia rose 7% in the first quarter, data from Thomson Reuters Trade Flows shows.

India saw the sharpest drop in Latin American supplies, down 13% during the quarter, although top Asian buyer China bucked the trend with an 11% rise in imports from South America, some taken in repayment for government loans. "It's not so easy for Latin American crude to make their way into Asia," a Singapore-based trader said, pointing to a narrower price spread between WTI and Brent after the US ended its crude export ban.

Indian refiners, for instance, are instead snapping up the next cheapest alternative, Iraqi Basra Heavy, the trader said.


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