It's a tale of two Russian Far East crude oil grades with ESPO enjoying strong buying interest due its higher residues yield and favor among Chinese independent refiners while Sokol languishes as its higher middle distillate content is shunned in a market brimming with jet fuel and diesel.
Premiums for the East Siberia-Pacific Ocean (ESPO) crude shot up to $2.20/bbl over Dubai for second-half December loading compared with an average of about plus $0.80/bbl for November-loading, market participants said. Sokol, on the other hand, last changed hands at a discount of $0.60/bbl to Dubai, for the same loading dates.
The differentials are in stark contrast to what these two grades typically command prior to the COVID-19 pandemic, with Sokol usually trading at above ESPO but does occasionally dip to a discount. However, the current over $2.50/bbl difference in favor of ESPO is one of the largest in recent memory, one source said.
"It is all about middle distillates, nobody wants jet-kerosene and diesel is still under pressure," said one trading source, adding that a fair amount of recent Sokol cargoes have ended up in storage in South Korea in the face of limited demand. Sokol traded at a premium of $3.60/bbl to Dubai in June for an August-loading parcel.
ESPO, is enjoying a renaissance of some sort as Chinese teapot operators snapped up cargoes that could land in January, allowing them to use import quotas issued for next year, they said.
The rush to buy was partly triggered by a recent spate of spot buying one of the country's two largest independent refiners, Rongsheng Petrochemical.
Rongsheng bought via two tenders about 15 million bbls of mostly Middle East medium-sour crudes including Upper Zakum, Qatar Marine, Basrah Light, Oman and Al-Shaheen for delivery on December and January, one source said. The purchases may also include one very large crude carrier (VLCC) cargo of North Sea Forties, a grade that has struggled to find a home in China in recent months.
"Rongsheng buying made everyone excited, there's anticipation of more demand from China teapots, especially with the 2021 quota due out soon," the market source said, which explains the interest in second-half December ESPO cargoes, he added.
About 70% of ESPO shipments or more, which amounted to about 650,000 b/d in November, typically end up in China due in part to its proximity at around a four-day voyage from Kozmino to northern Chinese ports as well as yield, which ultimately takes the form of in-demand bitumen, a much sought after product at the moment.
ESPO can yield as much as 47% residual fuels, which if fed into a coker will give refiners high levels of bitumen and gasoline.
Reduced shipments of ESPO due to the OPEC+ output cut agreements, which Russia is complying fairly strictly, has also led to the improved premiums. Prior to the cuts, exports hovered around the 700,000 b/d mark depending on Russian refinery runs and maintenance programs. Sokol shipments currently average around 200,000 b/d rising to as much as above 250,000 b/d previously.
--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com;
--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com
Copyright, Oil Price Information Service
